The global forex market is the largest market in the world. It trades over US$ 7.5 trillion daily, according to Bank for International Settlements (BIS) data. The forex market isn't the only way for investors and traders to participate in 澳洲幸运5官方开奖结果体彩网:foreign exchange, however. It's not nearly as large as the forex market but the currency futures market has a respectable daily average close to $100 billion.

Currency futures are futures contracts where the underlying commodity is a 澳洲幸运5官方开奖结果体彩网:currency exchange rate. They provide access to the 澳洲幸运5官方开奖结果体彩网:foreign exchange market in an environment that's similar to other futures cont♎racts. This image shows an example of a price chart of one of the many currency futures cont✃racts.

What Are Currency Futures?

Currency futures are also called 澳洲幸运5官方开奖结果体彩网:forex futures or foreign exchange futures. They're exchange-traded futures contracts tꦜo buy or sell a specified amount of a particular currency at ﷽a set price and date in the future.

Currency futures were introduced at the 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange, now known as the CME Group, in 1972 soon after the 澳洲幸运5官方开奖结果体彩网:fixed exchange rate system and the 澳洲幸运5官方开奖结果体彩网:gold standard were discarded. They're traded in terms of contract months with standard maturity dates typically falling on the third Wednesday of March, June, September, and December, similar to other futures products.

Contract Types

A wide variety of currency futures contracts are available. Aside from the popular contracts such as the EUR/USD (euro/U.S. dollar currency futures contract), there are also 澳洲幸运5官方开奖结果体彩网:E-Micro Forex Futures contracts that trade at 1/10th the size of regular currency futures contracts as well as 澳洲幸运5官方开奖结果体彩网:emerging market currency pairs such as the PLN/USD (Polish zloty/U.S. dollar futures contract) and the RUB/USD (Russian Ruble/U.S. dollar futures contract).

Different contracts trade with varying degrees of 澳洲幸运5官方开奖结果体彩网:liquidity. The daily volume for the EUR/USD contract might be 400,000 contracts versus 33 contracts for an emerging market like the BRL/USD (Brazilian real/U.S. dollar).

Currency Futures Exchanges

Forex contracts are traded via currency brokers but currency futures are 澳洲幸运5官方开奖结果体彩网:traded on exchanges that provide regulation in terms of centralized pricing and clearing. The 澳洲幸运5官方开奖结果体彩网:market price for a currency futures contract will be relatively the same regardless of the broker that's used.

The CME Group offers 55 currency futures contracts and 46 currency pairs with over $100 billion in daily liquidity, making it the largest regulated currency futures marketplace in the world. Smaller exchanges are present worldwide including the Euronext, the Tokyo Financial Exchange (TFX), and the Brazilian Mercantile and 澳洲幸运5官方开奖结果体彩网:Futures Exchange (BM&F).

Popular Contracts

Traders and investors꧋ are drawn to markets with high liquidity because these markets provide a better opportunity for profits. The emerging markets typically have very low volume and liquidity and they have to gain traction before becoming competitive with the other established contracts.

This image shows some examples of currency futures contract🌸s and their specifications.

Contract Specifications

Futures contracts and currency futures must list specifications that include the size of the contract, the minimum price increment, and the corresponding 澳洲幸运5官方开奖结果体彩网:tick value. This information helps traders determine positio🦩n sizing and account requirements as well as the potential profit or loss for different price movemenജts in the contract.

The Euro/U.S. dollar contract in the image shows a minimum price increment of .0001 and a corresponding tick value of $12.50. This indicates that the value of the contract will change by $12.50 with the value dependent on the direction of the 澳洲幸运5官方开奖结果体彩网:price change each time a .0001 movement in price occurs.

The .0001 price move would be worth $12.50 to the trader if a long trade is entered at 1.3958 and moves to 1.3959, assuming one contract. The price move would be worth $125.00 ($12.50 X 10 ticks or pips) if that same long trade moves to 1.3968.

Settlement

Buyers and sellers will usually offset their original positions before the last day of trading, a day that varies depending on the contract, by taking an opposite position. A profit or loss is credited to or debited from the trader's account when an opposite position closes the trade before the last day of trading.

Contracts are sometimes held until the 澳洲幸运5官方开奖结果体彩网:maturity date when the contract is cash-settled or 澳洲幸运5官方开奖结果体彩网:physically delivered d🦄epending on the specific contract and exchange. Most currency futures are subject to a physical delivery process four times a year on the third Wednesday of March, Ju🅠ne, September, and December.

Only a small percentage of currency futures contracts are settled in the physical delivery of foreign exchange between a buyer and seller. The appropriate exchange and the participant each have duties to complete the delivery when a currency futures contract is held to expiration and 💎is physically settled.

Futures contracts don't exist directly between a buyer and a seller. Each participant has a contract with a clearinghouse, greatly reducing the risk for buyers and sellers that a 澳洲幸运5官方开奖结果体彩网:counterparty would fail to meet the terms of the contract.

Oversight

Futures brokers including those that offer currency futures must follow regulations enforced by governing agencies including the 澳洲幸运5官方开奖结果体彩网:Commodity Futures T🍰rading Commission (CFTC) and the 澳洲幸运5官方开奖结果体彩网:National Futures Association (NFA), as well as rules set forth by the exchanges.

The CME Group is the largest futures exchange in the world. It ensures that self-regulatory duties including market integrity protection are fulfilled through its Market Regulation Department by maintaining fair, efficient, competitive and transparent markets.

Currency futures markets have a great deal more oversight than the spot forex markets which are at times criticized for non-centralized pricing and 澳洲幸运5官方开奖结果体彩网:forex brokers trading against their clients.

Account Requirements

Currency futures are exchange-traded futures. Traders typically have accounts with brokers that direct orders to the various exchanges to buy and sell currency futures contracts. A 澳洲幸运5官方开奖结果体彩网:margin account is generally used in the trading of currency futures. A great deal of cash would otherwise be required to place a trade. Traders borrow money from the broker to place trades with a margin account. It's usually a multiplier of t📖he actual𒉰 cash value of the account.

Buying power refers to the amount of money in the margin account that's available for trading. Different brokers have varying requirements for margin accounts. Currency futures accounts generally allow a rather conservative degree of margin or leverage when compared to 澳洲幸运5官方开奖结果体彩网:forex accounts that can offer as much as 400:1 leverage.

The liberal margin rates of many forex accounts provide traders with an opportunity to make impressive gains but they more oft𒊎en suffer catastrophic losses.

Currency Futures vs. Forex

Currency futures ꧃and forex are both based on foreign exchange rates but they hav📖e many differences:

• The forex 澳洲幸运5官方开奖结果体彩网:spot market is the largest market in the world. Currency futures trade at a fraction of the volume with many currency futures contracts trading under high volume and good liquidity.
• Currency futures are exchange-traded and are regulated like other futures markets. Forex has less regulation and trading is conducted over the counter through forex dealers. There's no central marketplace.
• Currency futures can be traded using modest leverage. Forex offers the ability to trade with a great deal of leverage, leading to large wins and large losses.
• The tax treatment for profits and losses incurred from currency futures trading and 澳洲幸运5官方开奖结果体彩网:forex trading can differ depending on the particular situation.
• Commissions and fees differ. Currency futures typically involve a commission that's paid to the broker and other various 澳洲幸运5官方开奖结果体彩网:exchange fees. Forex traders don't pay these commissions and fees but they're subject to exchange rate spreads through which the forex dealer profits.

The Bottom Line

Investors and traders who are interested in 澳洲幸运༒5官方开奖结果体彩网:participat𒐪ing in the foreign exchange market have options. Forex and currency futures offer traders unique vehicles with which to hedge or speculate. The currency futures market is similar to other futures markets and prov🦩ides participants with a means of entering the foreign exchange market with greater regulation and transparency.

Disclosure: This article is not intended to provide investment advice. Investing in securities entails varying degrees of risk and can result in partial or total loss of principal. The trading strategies discussed in this article are complex and should not be undertaken by novice investors. Readers seeking to engage in such trading strategies should seek extensive education on the topic.