Foreign exchange futures trading is one of the methods of foreign exchange transactions. After the foreign exchange transaction is completed, the buyer and the seller do not provide a spot but only offer a certain margin and enter into a contract, agreeing to handle the actual receipt and payment of foreign exchange business based on the agreed exchange rate in a particular month in the future. This is one of the primary measures to avoid exchange rate risk. The delivery period is generally one month, three months, and six months. In foreign trade, exporters often sign forward payment contracts to expand exports and enhance the international competitiveness of exported goods; importers often sign forward payment contracts for the convenience of financing. It is difficult to predict the fluctuation of the currency exchange rate and the more significant losses to both parties in the period before the realization of receipt and payment. To avoid exchange rate risks, importers need to buy foreign exchange futures that are due to be paid in advance; exporters need to sell foreign exchange futures that are due to receive in advance to avoid exchange rate risks; foreign exchange banks also need to ensure their business operations and financial security. Balance positions by buying or selling forward foreign exchange futures.
Foreign exchange futures trading is in the futures exchange. Through the open auction, the two parties reach a specified date, place, price in the future and buy or sell a set amount of foreign exchange contract transactions.
Transactions in the foreign exchange market include spot foreign exchange transactions, forward foreign exchange transactions, foreign exchange options transactions, and foreign exchange futures transactions.
Spot foreign exchange transactions refer to transactions between the buyer and the seller on the second working day after the transaction is completed.
Forward foreign exchange transactions are also called forward foreign exchange transactions. It is a business in which buyers and sellers make appointments to buy and sell foreign exchange through commercial banks and investment banks. Compared with spot foreign exchange transactions, forward foreign exchange transactions have the advantages of maintaining value, avoiding exchange rate risks, and flexible capital planning and turnover.
Foreign exchange option trading is also a kind of forward foreign exchange transaction, different from the general forward foreign exchange transaction. The foreign exchange transaction includes the trading of options.
Both foreign exchange futures and forward foreign exchange transactions specify that a particular standard amount of foreign currency will be paid and delivered at a predetermined price on a specific date in the future. But foreign exchange futures trading is different from forwarding foreign exchange trading.
Foreign exchange futures trading is a design-based futures contract, which manifests itself in the design-based transaction currency and transaction volume. The design is displayed in First, the creation of the transaction currency. For example, when the Chicago International Money Market Futures Exchange opened, there were only eight currencies: US dollars, British pounds, Canadian dollars, German marks, Japanese yen, Swiss francs, Dutch guilders, and Mexican pesos. The second is the design of the contract amount. There are special regulations on the transaction amount of different foreign exchange futures contracts, such as a futures contract for GBP 25,000, Japanese Yen for 12,500 000, Swiss Francs for 125,000, Canadian Dollars for 100,000, and German Marks for 125 000. The third is to fix the delivery deadline and delivery date. The delivery period is generally the same as the calendar month, mainly in March, June, September, and December. It can be purchased but not delivered in other months of the year. The delivery date is usually Wednesday of the third week of the expiration month. Global Jinhui.com provides foreign exchange transactions.
The price of foreign exchange futures is related to the spot price. The futures price and the spot price change in the same direction, and the magnitude of the change is generally the same. As the futures delivery date approaches, the exchange rate represented by the futures contract and the currency exchange rate in the spot foreign exchange market gradually shrink. The two exchange rates coincide on the delivery date.
A margin system is implemented for foreign exchange futures trading. In the futures market, both buyers and sellers must pay a certain margin when opening an account for trading. The purpose of the deposit is to ensure that the buyer and seller can fulfill their obligations. To ensure that its members can meet transaction needs, the clearinghouse requires members to open a margin account and store a certain amount of currency. At the same time, members also charge a certain amount of margin from their clients. Margin is divided into initial margin and maintenance margin. The initial deposit must be deposited when the contract is concluded. Generally, 3%-10% of the contract value is determined according to the volatility of the exchange rate of the transaction currency. The maintenance margin refers to the minimum margin limit when the customer has to make up the margin if a loss occurs after the contract is opened, resulting in a decrease in the margin. Once the margin account balance drops below the maintenance level, the customer must pay the margin again and restore the margin to the initial level.
The daily settlement system is implemented for foreign exchange futures trading. At the end of each business day, the clearinghouse must clear each transaction; that is, the clearinghouse will settle each trade according to the clearing price. The profitable party can withdraw the profit, and the loss-making party must make up the position. Due to the implementation of daily settlement, the customer's book balance will change every day, and every trader is very clear about his role in the market. If you want to exit the market, you can trade in the opposite direction to hedge.
Forward foreign exchange transactions
The difference is mainly manifested in the following aspects:
For foreign exchange futures transactions, as long as the regulations pay the deposit, any investor can conduct transactions through foreign exchange futures brokers. The restrictions on the principal are not as good as to forwarding foreign exchange transactions because, in forward foreign exchange transactions, most of the participants are specialized securities Dealers or large manufacturers with good business relationships with banks, individual investors, and small and medium-sized enterprises who have not obtained credit lines from banks are extremely difficult to have the opportunity to participate in forward foreign exchange transactions.
Both parties in foreign exchange futures transactions must pay margin, apparent daily through the futures exchange, calculate profit and loss daily, and makeup or return the excess margin. Whether or not to pay margin for forwarding foreign exchange transactions depends on the relationship between the bank and the customer. Usually, there is no need to pay margin. The profit and loss of forwarding foreign exchange transactions will not be settled until the contract's expiry date.
Different transaction methods
Foreign exchange futures trading is carried out in the way of public outcry on the futures exchange. The two parties in the transaction do not contact each other, and each uses the clearinghouse to settle the intermediary and bear the credit risk. Futures contracts have restrictions on currency types, delivery periods, trading units, and price changes. The currency is limited to a few major currencies. The forward foreign exchange transactions are over-the-counter transactions. The transaction is carried out by telephone or fax, and the buyer and seller are opponents to each other, and there is no currency restriction. The transaction amount and maturity date are both determined by the buyer and the seller. When the economy is in a recession, the counterparty’s risk of default increases, and there are no particular restrictions on transaction time, location, price, and market information disclosure.
In foreign exchange futures trading, foreign exchange is usually bought and sold at the domestic currency price. For example, in the U.S. market, only U.S. dollars are quoted. Therefore, other currencies other than the U.S. dollar, such as the mark and the Japanese yen, can only be used as a proxy for the hedging between the impact and the yen. Intermediate buying and selling of Japanese Yen or Mark thus constitute two transactions. In forward foreign exchange transactions, different currencies can be directly traced.
Spot and balance settlement
For foreign exchange futures transactions, because the clearinghouse is the transaction intermediary, the amount and time limit are specified, so spot delivery is not implemented. The overdue amount is calculated daily and settled through the increase or decrease of the margin. Although the delivery date is indicated on the futures contract, it can be transferred before the settlement date, and hedging is implemented to reduce and diversify exchange rate risks. Of course, the actual difference should be delivered on the spot, and the proportion of this part is tiny. In forwarding foreign exchange transactions, settlement or contract performance must be carried out on the delivery date.
Foreign exchange fund management
What are the critical factors for successful futures trading? Is it to look for trading opportunities or to enter the market accurately? Is it an analytical technique or a timely closing out? None of these, the key to success in futures trading is fund management.
Of course, we must be familiar with technical analysis and fundamentals, and on this basis, the quality of fund management directly determines the interests of investors! The risks of the futures market are unpredictable, and careful fund management is even more critical.
If you want to become a qualified and successful futures investor, then in the early stages of investment, the first thing is to preserve your funds. Making money is something later!
If you want to survive in the futures market, you must have complete fund management methods. Even for a novice, luck may be good at first, but in the end, there is still some time to miss. If he mismanages his money in a loss-making position, he will dump out the profits he has made and put his money into it!
On the contrary, if a newcomer can be cautious in capital management and stop the loss when a loss occurs, he can leave a certain amount of leeway for future transactions. Preserving strength is the key to survival in the futures market, and it is also the key to victory in the end.
Fund management plays a vital role in the success of futures trading. One point needs to be explained: successful investors can strictly set the stop loss level in the transaction and cut off the loss in time; on the contrary, the profit position has been expanded as much as possible. The result of the battle. In this way, the profit of several large orders on a year's profit and loss statement is enough to offset several small losses, and the result is still a good level of profitability. The reason lies in the proper management of funds.
The pros and cons of fund management are only relative terms. Management methods that are suitable for one trader may not be realistic for another trader. In other words, investment in futures must not be greedy. There is an old saying in the futures market: Being a bull or a bear has a chance to win, but being a pig will suffer sooner or later! In other words, small retail investors must strictly control the funds in their hands.
There are so many books on futures and stocks in the market. Most readers spend at least one chapter devoted to funding management methods.
Compared with retail investors, the fund management mode should not exceed one-third of the total capital each time. For large and medium-sized investors, the amount of each order should not exceed 10% of the total wealth. What needs to be clear is that the larger the number of funds, the smaller the transaction funds.
All transactions must be strictly stopped. Stop the loss in time for losing positions, and try to enlarge the good part. Every time you trade, you must not set a dead code. Compared with novices in futures trading, the most important thing is to maintain your strength.
Foreign exchange trading steps
For novices, foreign exchange trading, especially margin trading, generally requires two steps: account opening and trading.
Account opening. The account opening mentioned in the current foreign exchange margin trading is actually the choice of the platform used for foreign exchange speculation. Many platforms can be used. There are many IBS (economic people) in China, and the spreads are different and fixed. Yes, there are also floating ones.
Pay attention to the following points when opening an account:
The security of funds must be regulated, preferably regulated by multiple countries. Otherwise, it is primarily a gambling platform or a black platform.
The transaction cost should be as low as possible (of course, the lower, the better, it should be within a reasonable range), IB is best not to add points, no commissions;
The stability of the platform should be good, the market conditions and transaction speed should be responded to in time, there is no slippage, and the slippage of FXCM can be adjusted by itself;
Good service, convenient and straightforward account opening process, convenient and instant deposit and withdrawal.
Trading is the core of making money in the financial securities market. This is actually a science. Most of our investors are trading with their own feelings and do not understand the real trading techniques. Really professional traders are using strategic trading, which is a series of scientific trading processes. Generally speaking, these trading strategies are mainly divided into:
Trend breakthrough trading method (the characteristic is that the success rate is not high, but the profit of profitable orders will be enlarged as much as possible, such as the famous "Turtle Trading Law");
Hedging plus trading method (the characteristic is that it requires a lot of funds to fight the market, but if there is a historical turning point in the market, there is a risk of destruction);
Grid locking trading method (the characteristic is that the profitability is firm in the consolidation market, but once the market enters a unilateral trend, the risk is enormous);
Scalping trading method (characteristics are high success rate, frequent transactions, not much profit each time, but reasonable stop loss control and low transaction costs);
Periodic resonance trading method (characteristics are general success rate, unstable profitability, and significant fluctuations in the capital).