Futures Market. Currency futures are specific types of forward outright deals. Because
they are derived from the spot price, they are derivative instruments. They are specific with regard to the expiration date and the size of the trade amount. Whereas, generally, forward outright deals—those that mature past the spot delivery date—will mature on any valid date in the two countries whose currencies are being traded, standardized amounts of foreign currency futures mature only on the third Wednesday of March, June, September, and December.
The following characteristics of currency futures that make them attractive. They are open to all
market participants, individuals included. It is a central market, just as efficient as the cash market,
and whereas the cash market is a very decentralized market, futures trading takes place under one roof. It
eliminates the credit risk because the Chicago Mercantile Exchange Clearinghouse acts as the buyer
for every seller, and vice versa. In turn, the Clearinghouse minimizes its own exposure by requiring traders
who maintain a nonprofitable position to post margins equal in size to their losses. Although the futures and
spot markets trade closely together, certain divergences between the two occur, generating arbitraging
opportunities. Gaps, volume, and open interest are significant technical analysis tools
solely available in the futures market.
they are derived from the spot price, they are derivative instruments. They are specific with regard to the expiration date and the size of the trade amount. Whereas, generally, forward outright deals—those that mature past the spot delivery date—will mature on any valid date in the two countries whose currencies are being traded, standardized amounts of foreign currency futures mature only on the third Wednesday of March, June, September, and December.
The following characteristics of currency futures that make them attractive. They are open to all
market participants, individuals included. It is a central market, just as efficient as the cash market,
and whereas the cash market is a very decentralized market, futures trading takes place under one roof. It
eliminates the credit risk because the Chicago Mercantile Exchange Clearinghouse acts as the buyer
for every seller, and vice versa. In turn, the Clearinghouse minimizes its own exposure by requiring traders
who maintain a nonprofitable position to post margins equal in size to their losses. Although the futures and
spot markets trade closely together, certain divergences between the two occur, generating arbitraging
opportunities. Gaps, volume, and open interest are significant technical analysis tools
solely available in the futures market.
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