Foreign exchange futures trading refers to the foreign exchange delivery method in which the buyer and seller perform the transaction at the agreed exchange rate within the expiry date agreed in the contract after the transaction. Date, the delivery of a certain standard amount of foreign currency at the currently agreed price, that is, a contract signed by the buyer and the seller at the agreed amount, price, and delivery date.
Foreign exchange futures trading is in the futures exchange, the two parties through the open auction to reach a specified date, place, price in the future, buy or sell a specified 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, which is different from the general forward foreign exchange transaction, mainly in that the foreign exchange transaction includes the trading of options.
Both foreign exchange futures transactions and forward foreign exchange transactions are transactions that specify that a certain 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 forward foreign exchange trading.
The development history of the foreign exchange futures market
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 options 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.