Understanding the Concept of Forex Futures

Forex trading is directly related to fluctuations in price differentials in hard currencies. It also is speculative in nature. This further enhances the risk factor in Forex trading. Visit brokers in uae

Forex Futures also involves speculations depending upon the demand-supply parameters tagged to the global economic and political situations. 

Forex Futures can be defined as a market practice under which the standardized future contracts to sell or buy a currency on a given date are fixed. 

The time and size of such a contract are also set under the Forex Futures. Such contracts are traded in different Future Exchanges of the world. 

Under Forex Futures Trading, it is obligatory or contractual on the part of the trader to buy or sell an exchange-traded currency derivative at a price and time set earlier. 

Main Features of Forex Futures Trading

It has the following features:

1.     This is a Forex market dynamism of Hedging to bring down the risks caused by the currency price fluctuations caused by different reasons. 

2.     This is a system to avoid speculative tendencies or market speculations to protect your investment in Forex. 

3.     It is considered the safest bet to ensure a good profit margin. 

4.     Futures contracts are publicly tradable at exchanges. The area of operation can be global. 

5.     It serves as an independent Financial Instrument in the following ways:

  • Companies or sole proprietors can use it as an instrument to Hedge their investments  
  • Exchange-Rate risk in cross-border currency dealing is minimized. 
  • The benefit of fluctuations in the exchange rates. This means earning more profit from the price differentials in a given period.   Know more مجموعة ملتي بانك

What Are The Forex Futures Exchanges? 

Being global in nature, there are a large number of clearing houses and exchanges in the world for Forex Futures trading.  

They are marked by the following features in their modus operandi:

  • Forex Futures is an instrument of Contracts. It is the exchanges that trade in such Futures. This trading by exchanges is done mainly in the following two ways:

1.     traded in an open out-cry system (This is an old system. The current system of trading has been switched over to the digital method or replaced by electronic trading).  

2.     trading is done with Internet-enabled computers known as Digital Trading. 

  • Exchanges function based on a specific pre-determined Termination Date.
  • Such exchanges are engaged in cash settlements. 
  • Conduct regular trading in Futures. 

Which Type Of Currencies Are Traded In Forex Futures? 

Not all currencies are traded as Forex Futures. They belong to several countries. A futures Contract on a pre-determined date is exchanged for one currency to another. 

There are a limited number of currencies that are traded in FX Futures and Currency Futures, the two generally used terms for Forex Futures. All listed currencies are hard currencies. 

There are some Currency Derivatives also. They are available only for a limited number of hard currency pairs. These pairs are:

1.     EUR-USD (Euro and US Dollar)

2.     GBP-USD (Great Britain Pound and Yen of Japan)

3.     USD-JPY (US Dollar and Yen of Japan).  

There is a smaller number of other currencies also that are also traded at Forex Futures. These currencies are:

1.     Australian Dollar

2.     Swiss Franc 

3.     Canadian Dollar, and 

4.     New Zealand Dollar.

How You Can Become A Forex Future Trader?

FX Futures is similar to the equities market. If you want to become an FX trader, you should adopt the following to achieve success in it:

1.     Learn Technical and Fundamental Analysis of Forex Futures markets. You should watch the periodical price movement. For this, the best way is to do a Trend Study of price fluctuations of the currencies that are traded as FX. Also, you should gather knowledge about terms like FX Structured Products.

2.     Ratio Analysis is another tool that you should employ to understand which currency or currency derivatives are yielding maximum return (at which ratios, the payouts are taking place.)

3.     Regularly monitor the economic and business scenarios taking place at the global level. 

4.     Do country-specific research: look at how their economies are fairing and how stable their political condition is. 

5.     Apply Macroeconomic Principles: global situation of war and peace. 

6.     Oil and Gold Prices movements. 

7.     Form an idea |(preferably your own) about the Future of a particular currency and you forecast what the Future of the currency of concerned would like to be after a given space of time. 

8.     Your success in FX trading also depends upon your keen observation of the two factors:

  • Inflationary Tendencies
  • Deflationary Trend. 

(Both these factors have to be analyzed in the sense of macroeconomics or at a global level).  

1.     You must know the principles of the Cyclic Order of FX trade. In this regard, you should take the following two cycles into consideration:

  • Boom (i.e. Bearing Tendency): this usually happens in the global economy with things being equal. FX is highly sensitive to pulls and pressures taking place at the international level. The boom phase can take place when things are equal with no aberrations at the international level. 
  • Bust (i.e. Bearish Tendency): All selected currencies and their derivatives in pairs are highly susceptible to inflation, depression, financial crises like the Sub-Prime Crisis, and financing of war economies. They can result in the Busting of FX rates. As a result, your differentials in prices may go down. To further elaborate on this factor, if the GDP of a country is falling, the currency of that country is also likely to fall.  

Conclusion

The expansion of the Forex Futures market proves this is currently gaining popularity as a means of booking profit all across the world (except few countries). Usually, the FX is considered one of the best options for early investors and small investors. 

This is due to the reason that they can reap the benefit of liquidity in a time-bound money market framework. The large investors gain by booking large profits. They also find FX as a Hedge for their large funds. 

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