An Introduction To Trading Forex Futures

January 22, 2022

Depending upon the analyst, broader macroeconomic principles may take a backseat to company-specific characteristics. However, traders of FX futures , must be absolutely familiar with macroeconomic principles and forecasting techniques. Similar to the equities market, traders of FX futures employ both technical and fundamental analysis. Technical analysis by nature examines price and volume data, and subsequently, similar methodologies are prevalent across both the equities and the futures markets.

  • Unlike their forwards counterparts, futures contracts are publicly traded, non-customizable and guaranteed against credit losses by an intermediary known as a clearinghouse.
  • For the sake of the example, imagine that the prevailing spot EUR/USD rate is currently at $1.04.
  • In order to become competent in futures trading, it’s imperative that one is aware of the underlying asset’s fundamentals, pricing tendencies, applied leverage and the contract expiration date.
  • She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.
  • These contracts are traded at one of the numerous futures exchanges around the world.

Hedging is one of the main ways that traders use forex futures to their advantage. By using this strategy, they are reducing their exposure to the risk created by currency fluctuations. For example, an investor might be able to enter into a €125,000 contract with €12,500 in margin. Once the investor has entered a forex futures contract like this, a small change in the price of the underlying asset could yield big results. This is the point at which the underlying assets exchange hands, unless a trader establishes an opposite position that offsets the original contract.


Note, however, these are generalized definitions and the differentiating characteristics of traders are not black and white. At times, day traders may employ fundamental analysis, such as when Federal Open Market Committee data is released. Swing traders are traders who hold positions overnight, for up to a month in length.

The futures markets also feature mini-contracts at half the standard of the regular contract and the E-Minis, which are 1/10th the size of their regular counterparts. E-minis are ideal for new traders because of their increased liquidity and accessibility due to the lower margin requirements. ATFX 2021 Overview are exchange-traded currency derivative contracts obligating the buyer and seller to transact at a set price and predetermined time. It’s important to remember that the currency markets are truly global in nature. For instance, if one is trading the EUR/USD, then being aware of the day’s happenings in the U.K.

FXCM Markets is not required to hold any financial services license or authorization in Bermuda to offer its products and services. We strongly recommend not to take any decisions based on the indications in the market status window but to always check the production news board for comprehensive information on an incident. As with the equities market, the types of trading method are dependent upon the unique preferences of the individual when it comes to both techniques and time frames. An example of margin requirements for each type of contract can be found on the Chicago Mercantile Exchange, or CME’s websitehere. Trade your opinion of the world’s largest markets with low spreads and enhanced execution. This file provides an overview of mistrade ranges for Options and Futures including information on their behavior close to expiration and in stressed markets.

They generally employ technical analysis spanning a longer time frame , as well as short-term macroeconomic factors. The global foreign exchange market accounts for over $5 trillion U.S. dollars worth of average daily trading volume, making it one of the largest markets in the world. For example, the CME Australian dollar FX (AUD/USD) has a contract size of 100,000 AUD and may be traded on an intraday basis for around 1,500 AUD per contract. This is a margin rate of 1.5%, well in excess of forex dealers that offer up to 400/1 leverage or an AUD/USD margin of 0.25%. The global foreign exchange market accounts for over $5 trillion U.S. dollars worth of average daily trading volume.

Initial Vs Maintenance Margin For A Futures Contract: What’s The Difference?

Referring to the specifications above for the CME Euro FX, trade is terminated two days before the third Wednesday of the contract month. At that point, the contract is taken “off the board” and ceases to be tradable. Subsequently, the contract’s public liquidity goes to zero as the exchange and clearing house initiate settlement procedures. The E-mini S&P 500 is an electronically-traded futures contract representing one-fifth of the value of the standard S&P 500 futures contract. While often quoted in the U.S. dollar, they can be quoted in other currencies, for example the British pound and the Swiss franc.

In doing so, technical FX futures trading tools promote informed decision making, strong strategy development and consistent trade. Forex traders can use a great deal of their conventional forex training in the futures markets that they would use when trading in the spot markets. Entering a futures contract requires a trader to deposit margin, which in this case is money that a participant is willing to put investments down as a sign of good faith. However, this margin could be a mere fraction of the total value of the contract that a trader enters. Although futures margins vary according to exchange, product, broker and market conditions, they are typically greater than conventional forex margins. The purchasing Exchange Participant shall bear the responsibility for compliance with the content of the cross request entry.

A derivative is a securitized contract whose value is dependent upon one or more underlying assets. The key difference between forex and forex futures is that the former is not subject to exchange rules and regulations, while the latter is transacted on established exchanges. Trading foreign exchange with any level of leverage may not be suitable for all investors.

Currency futures or FX futures are standardised contracts that obligate the holder to buy or sell a specific quantity of a currency on a forthcoming date in time. The underlying asset is priced using the currency exchange rate itself, much like in conventional forex trading. However, currency futures are exchange-traded issues, contrary to the over-the-counter forex market. Day traders generally never hold positions overnight and can be in and out of a trade within a matter of minutes seeking to jump on an intraday swing.

Don’t Want To Miss Updates On Eurex Fx?

However, traders may need a far larger initial capital outlay to take part in the futures market. Also, investors looking to trade forex futures will need to do so during the trading hours of the relevant exchanges. While some derivatives can be customised, futures are standardised, meaning they have specific contract sizes and set procedures for settlement. While many of these contracts are quoted against the U.S. dollar, some are quoted against other currencies, such as the British pound or Swiss franc.

This settlement price is then used to determine whether a gain or loss has been incurred in a futures account. In the time span between the previous day’s settlement and the current’s, the gains and losses are based on the last settlement value. While a modest increase in the price of this asset could generate significant gains for the trader, an equally small decline may produce substantial losses. Also, a futures trader could end up owing more money than the initial margin they supplied. Should initial margin requirements be violated, the trader may receive a margin call or have open positions prematurely liquidated. As the specifications above indicate, currency futures are highly standardized financial derivatives.

forex futures

Is centered around price and volume action with a heavy emphasis on technical analysis as opposed to fundamental factors. broker are standardized futures contracts to buy or sell currency at a set date, time, and contract size. These contracts are traded at one of the numerous futures exchanges around the world. Unlike their forwards counterparts, futures contracts are publicly traded, non-customizable and guaranteed against credit losses by an intermediary known as a clearinghouse. Futures contracts are financial derivatives products that obligate two parties to make a specific exchange for a set value for a predetermined time.

Perhaps the most valuable fundamental currency futures trading tool is a detailed 24-hour economic calendar. As a result of these risks, traders who are thinking about trading forex futures can benefit from doing extensive research before entering any positions. After the time has elapsed and the euro has fallen to $1.03, the fund has realized gains of $3,750 per shorted contract, calculated by 300 ticks (at a minimum price move per tick at $.0001) and a multiplier of $12.50 per contract.

Join thousands of traders who make more informed decisions with our premium features. An American company doing business in Europe is expecting to receive a payment of €1,000,000 for services rendered in five months’ time. For the sake of the example, imagine that the prevailing spot EUR/USD rate is currently at $1.04. In contrast to the CAD/USD futures, the CHF/USD contract has a contract size of 125,000 Swiss francs.

An Introduction To Trading Forex Futures

The tick, in this case, is $.0001 per Swiss franc increments or $12.50/contract. A non-equity option is a derivative contract with an underlying asset of instruments other than equities. They can be used by companies, or sole proprietors, as a hedging vehicle to remove the exchange-rate risk inherent in cross-border transactions. All services and products accessible through the site /markets are provided by FXCM Markets Limited with registered address Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary and do not constitute investment advice.

forex futures

The terms of trade are clearly spelled out, from the applied leverage and expiration dates to settlement procedures. Thus, trading the EUR/USD on the forex market is far different from trading the Euro FX on a futures exchange. Fearing further deterioration of the euro against the dollar, the company can hedge this upcoming payment by selling eight euro futures contracts, each containing €125,000, expiring in five months at $1.06 dollars per euro. Over the course of the next five months, as the euro depreciates further against the dollar, the company’s account is credited daily by the clearinghouse. However, the biggest analytical contrast between the FX trader and say, a stock trader, will be in the way they employ fundamental analysis. Fundamental analysis in the stock market may emphasize scrutinizing the accounting statements of a firm, management discussion and analysis, efficiency analysis, ratio analysis, and industry analysis.

Much like in the equities markets, the type of trading style is entirely subjective and varies from individual to individual. The clearinghouse provides this guarantee through a process in which gains and losses accrued on a daily basis are converted into actual cash losses and credited or debited to the account holder. This process, known as mark-to-market, uses the average of the final few trades of the day to calculate a settlement price.

Should a trader set up two contracts that act in this manner, their position is neutral. Unlike margin in the stock market, which is a loan from a broker to the client based on the value of their current portfolio, a margin in the futures market refers to the initial amount of money deposited to meet a minimum requirement. There is no borrowing involved, and this initial margin acts as a form of good faith to ensure both parties involved in a trade will fulfill their side of the obligation. Furthermore, the futures initial margin requirement is typically lower than the margin required in a stock market. One of the greatest benefits of technical tools is that they are quantitative in nature. No matter what the market state may be, technicals reflect evolving price action.