Foreign exchange futures are standardized contracts in which the two parties agree to exchange one currency for another at a certain time in the future based on the currently agreed ratio. Refers to a futures contract with exchange rate as the subject matter, which is used to avoid exchange rate risk. It is the earliest variety in financial futures. Since the launch of the first foreign exchange futures contract by the International Money Market Division of the Chicago Mercantile Exchange in May 1972, with the development of international trade and the acceleration of the integration of the world economy, foreign exchange futures trading has maintained a vigorous development momentum. It not only provides effective hedging tools for the majority of investors and financial institutions and other economic entities, but also provides new profit-making methods for arbitrageurs and speculators.
Foreign exchange futures, also known as currency futures, are a kind of futures contract that converts one currency into another at the prevailing exchange rate on the final trading day. Generally speaking, one of the two currencies is the U.S. dollar. In this case, the futures price will be expressed in the form of "x U.S. dollars per another currency". The representation of the futures price of some currencies may be different from the representation of the corresponding foreign exchange spot exchange rate. It is the earliest variety in financial futures.
Since the launch of the first foreign exchange futures contract by the International Money Market Division of the Chicago Mercantile Exchange in May 1972, with the development of international trade and the acceleration of the integration of the world economy, foreign exchange futures trading has maintained a vigorous development momentum. It not only provides effective hedging tools for the majority of investors and financial institutions and other economic entities, but also provides new profit-making methods for arbitrageurs and speculators.
In May 1972, the Chicago Mercantile Exchange formally established the International Money Market Division and launched seven foreign exchange futures contracts, thus unveiling the prelude to the innovative development of the futures market. Since 1976, the foreign exchange futures market has developed rapidly, and trading volume has surged dozens of times. In 1978, the New York Mercantile Exchange also increased its foreign exchange futures business. In 1979, the New York Stock Exchange also announced the establishment of a new exchange to specialize in foreign currency and financial futures. In February 1981, the Chicago Mercantile Exchange opened Eurodollar futures trading for the first time. Subsequently, Australia, Canada, the Netherlands, Singapore and other countries and regions also opened foreign exchange futures trading markets. Since then, the foreign exchange futures market has flourished.
At present, the main types of foreign exchange futures trading are: US dollars, British pounds, German marks, Japanese yen, Swiss francs, Canadian dollars, Australian dollars, French francs, Dutch guilders, etc. From a global perspective, the main market for foreign exchange futures is in the United States, which is basically concentrated in the Chicago Mercantile Exchange's International Money Market (IMM), Central American Commodity Exchange (MCE) and Philadelphia Futures Exchange (PBOT).
The international currency market mainly trades futures contracts in Australian dollars, British pounds, Canadian dollars, German marks, French francs, Japanese yen and Swiss francs;
The Central American Commodity Exchange conducts futures transactions in British pounds, Canadian dollars, German marks, Japanese yen and Swiss francs;
The Philadelphia Futures Exchange mainly trades French francs, British pounds, Canadian dollars, Australian dollars, Japanese yen, Swiss francs, German marks and European currency units.
In addition, the main exchanges of foreign exchange futures include: London International Financial Futures Exchange (LIFFE), Singapore International Monetary Exchange (SIMEX), Tokyo International Financial Futures Exchange (TIFFE), French International Futures Exchange (MATIF), etc. Every exchange basically has a futures contract that trades its own currency with other major currencies. In the foreign exchange market, there is a traditional way of forward foreign exchange trading, which has the same or similarities with foreign exchange futures trading in many aspects, and is often mistaken for futures trading.
Here, it is necessary to make a simple distinction between them. The so-called forward foreign exchange transaction refers to a transaction method in which both parties agree to settle a certain amount of foreign exchange on a certain date in the future at the exchange rate determined at the time of the transaction. Forward foreign exchange transactions are generally reached by banks and other financial institutions through telephone, fax, etc., and the transaction quantity, duration, and price are freely negotiated, which is more flexible than foreign exchange futures. When hedging, forward transactions are more targeted and can often hedge all risks. However, the price of forward transactions does not have the openness, fairness and impartiality of futures prices. There are no exchanges and clearing houses as intermediaries for forward transactions, and the liquidity is much lower than that of futures transactions, and it faces the risk of default by the counterparty.