Forex Trading >

Currency Future

A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the last trading date. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance EUR 125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that.

More generally, each change of 0.0001 USD/EUR (the minimum tick size), is a profit or loss of USD 12.5 per contract.
Investors use these futures contracts to hedge against foreign exchange risk. They can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates. Investors can close out the contract at any time prior to the contract's delivery date.

Currency futures were first created at the Chicago Mercantile Exchange (CME) in 1972, less than one year after the system of fixed exchange rates was abandoned along with the gold standard. Some commodity traders at the CME did not have access to the inter-bank exchange markets in the early seventies, when they believed that significant changes were about to take place in the currency market. They established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1972. Today, the IMM is a division of CME. In the second quarter of 2005, an average of 332,000 contracts with a notional value of USD 43 billion were traded every day. Most of these are traded electronically nowadays.

Other futures exchanges that trade currency futures are Euronext.liffe and Tokyo Financial Exchange.

See also

• Foreign Exchange Market
• Commodity
• Currency
• Dividends
• Euro
• Exchange Rate
• Foreign Exchange Options
• Futures Contract
• Basis Point
• Interest Rate
• Investment
• Forex Scams
• Bid/offer spread

• Summary Measures of the Foreign Exchange Value of the Dollar
• Forex and Commodities Futures and Options. What to know before you trade
• Introduction to Forex
• FOREX 101: Make Money with Currency Trading

This article is licensed under the GNU Free Documentation License.
It uses material from the Wikipedia article "Currency Future".