The Basics of Currency Futures Contracts

The Basics of Currency Futures Contracts

Currency Futures Trading is a contract that specifies the delivery of currencies on a predetermined date and price. Futures require the owner to purchase the currency traded in the future. This represents a pledge for the transaction to take place on the specified date. For price risk insulation, futures contracts are often hedged. Many firms will use currency futures to protect them from the risk of the currency exchange rate that may affect future foreign payables or receivables.

Individuals or companies can also use currency contracts as speculative tools for future investments. They hope to benefit by purchasing a future today that they can sell before the maturity of the contract for a profit.

Future contracts are put on the market at the end of every day, and if your contract has no money, then you must meet a margin call, or sell your contract. This means that if you were to close your contract today, you would have to pay a sum as a result of currency fluctuations, you could no longer keep the same contract.

There are two different types of margins that must be met when trading futures contracts. These are the initial margin and the maintenance margin. The initial margin is the amount you must have in your margin account to buy future contracts. The maintenance margin is the amount that must be added to your account if your currency rate has moved against your futures contract. If the market is not going your way, you may end up making maintenance margin payments multiple days in a row.

Margins are subject to change without notice.
* Margins involving the spot month may be significantly higher.
The currency futures contracts mentioned above are all vs. the USD

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