Currency futures are contracts for the purchase and sale of currency in the future, at a certain time and at a predetermined price. They are concluded for the purpose of insuring against price changes in the market, as well as for making a profit by reselling a futures contract.
Concept and characteristics of currency futures
Distinguish between the market for currency and commodity futures. The futures market carries with it the possibility of speculating on changes in the price of a commodity. Among the goods can be grain, meat, gold, metals, currency. The purpose of buying contracts for goods is not their real acquisition, but earnings on obtaining the difference between the purchase and sale prices of the contract.
Futures trading is an alternative to operations on the FOREX market. If a buyer buys a futures contract below the quoted rate, it remains at a profit, more expensive at a loss. For contract sellers, the relationship is reversed. The value of futures contracts changes under the influence of many factors that influence the expectations of buyers and sellers about the future value of the currency.
Futures contracts have a standardized quantity and quality of goods. So, 1 contract for pork carcasses involves the supply of 40 thousand pounds of carcasses; 1 oil contract - 1,000 barrels oil; 1 currency futures - 1 lot of the base currency.
Another possible purpose of buying contracts is hedging. In this case, market participants seek to reduce unfavorable changes in currency rates by opening positions on the exchange.
You can distinguish futures for the purchase and sale of currencies. Currency futures are transactions with standard terms. All currency futures have an expiration date. When a currency futures expires, a delivery is made in which one of the parties receives one currency and the other party receives another. The share of currency futures that exists before the delivery date is very small - about 3%. Most of them close before - often traders only own contracts for a few hours.
A foreign exchange contract lasts 3 months (1 quarter), thus 4 contracts are traded per year, each of which has:
- September contract (U): June 15-September 15;
- December contract (Z): September 15 - December 15;
- March contract (H): December 15 - March 15;
- June contract (M): March 15 - June 15.
Also, currency futures have such characteristics as contract size, minimum price increment and pip value. All this helps traders to determine the size of positions and estimate the potential profit from the trade.
Types of currency futures
There are two types of futures: against the dollar and on the basis of cross rates (where none of the currencies is the dollar). The most popular is the euro / dollar contract. At the moment, other futures contracts are traded (in descending order of trading volumes): Japanese yen, British pound sterling, Swiss franc, Canadian dollar, Australian dollar.
On the Russian MICEX exchange, futures for the dollar and euro are quoted in rubles, and futures for the euro-dollar rate are quoted in dollars. The value of the contracts is 1000 currency units.
There are also E-Micro futures on the market, which are traded at much lower volumes than standard foreign exchange contracts. This includes, for example, emerging market currencies such as the Russian ruble (RUB / USD).
