Futures Forex Trading

Futures Forex Trading

A futures Forex trading contract is a contract made between two parties that is between a buyer and seller, for an underlying asset to buy or sell it on a specific date in the future at a specific price. This can be considered as the derived security. In futures currency, it can also be termed as an underlying asset, and are traded as contracts. This article helps you to understand the world of Futures Forex trading and how to trade Forex futures.

It depends on currency trader’s skills, requirements, and knowledge to decide whether they want to dive into the currency market or currency futures. The trader should understand what markets are based on, how they woks, how the margin works, …

What are Futures Forex Trading?

Forex market is the largest financial market in the world with an average daily trading volume amounting to 6.6 trillion U.S. dollars. There are many instruments to trade in this market, so there is no any bar on imagination. Such instruments derivative security named Forex Futures. It is note that Futures Forex trading negotiates with a massive volume of 112 billion U.S dollars per day.  

What are Forex Futures Contracts?

Like normal futures contract, a Forex futures contract is a standardized agreement between a seller and buyer to sell or buy a currency pair at a predetermined date, time and size. Across various Forex exchange markets, this contract is well known.

Unlike Forex forward, Forex futures are publicly trade which means that Forex futures trading is regulate, non-customizable in terms of size and settlement, and guaranteed for credit loss by a clearinghouse that acts as an intermediary.

Here the clearinghouse assures that the process of maintaining and converting daily profit and loss of traders into real cash by crediting or debiting their trading accounts with that amount daily. This is also known as “Mark to Market”. This process considers the average of the last few traders to arrive at a settlement price for the day. This is then use for calculating profit or loss for the day.

Forex Futures Trading Requires Margins

All the Forex futures clearinghouse needs a certain amount deposit by the traders as security, which is known as margin. Simply when we talk about margin, it is given to the trader’s based on their portfolio value as a loan to trade higher volumes in the stock market, but that’s not the case with the Forex futures market.

In this case, if you want to trade, you have to deposit the initial amount to meet the minimum margin requirements. The margin indicates that both the parties involved in the trade have the intention and faith to fulfil their contract formalities. In Forex futures trading there is no case of borrowing.

Margin in Forex futures trading requires way less amount as margin compared to the stock market, even from Forex futures markets it is less than 10%. All the Forex futures traders have to ensure that they meet the minimum margin requirements. Traders are require to have a predefined amount in their accounts as margin known as the maintenance margin, after daily mark to market procedures.

If loss occur, and if the margin amount go down the maintenance margin, a margin call is give to the trade. The margin call is to ask the trader to deposit money into the traders trading account to bring the margin amount back to the required initial amount.

Forex Futures Exchange

Forex futures are popular derivative instrument and are trade on all the exchange across the globe, though, the award for the most popular exchange goes to Chicago Mercantile Exchange (CME) as it records the daily highest volume for outstanding futures contracts.

Trading in Forex futures is not a challenge as it can be trade on an open out-cry system like through floor traders on an exchange or even by electronic mediums like a computer device and the internet just like online trading.

With the digitalization, the open outcry system is being replace with online trading. The beginning of this new era has already led to the phase-out of the out-cry system on the European exchange.

Futures Forex Trading
Futures Forex Trading
Trading and Speculating

Simply the traders will trade according to their preferences, desires and expectations. Along with that techniques and the entry or exit time also affects the trade. Long term traders tend to hold positions for a long time compared to day traders, as their regard.

Day Traders

A day trader is likely to hold a position overnight or can easily enter or exit a position within minutes. Here the focal point is the rate and volume fluctuations that can be track through technical analysis like chart patterns.

There are some tools to be use for Forex futures, that tools are common for equity trading as well as for Forex futures trading, it makes transactions easier between the traders the two asset types.

Swing Trader

Swing trading will be contrast to day trade, a swing trader stays in a trade overnight and the holding position can be extend to a month if needed. They also use technical analysis tools, but the time frame of technical analysis differs as swing traders employ daily or weekly data into study along with macroeconomic aspect for the near future.

Position Trader

Position traders are the last type of traders, or we can call them fundamental traders as well because they hold a position for weeks or even years. Technical analysis gauges less value than fundamental analysis.

Position traders are the least concerned with everyday profit and loss for the bigger picture. They tend to have large stop loss and risk management procedures in place compared to day traders and swing traders. These stated characteristics are not hardbound, but flexible, as in the end, it depends on what suits traders and what are the preferences.

A day trader can also use fundamental analysis like on the day when the federal open market committee data is about to be release. Just like that, a position trader can use technical analysis to decide points for entry and exit. Swing trader can also hold position for more than a month, it is subjective based on each individual.

Analytical Tools for Forex Futures Trading

The forex market also employs technical and fundamental analysis. Technical analysis uses price data and volume data for analysis, whereas in fundamental analysis, the in depth study of a firm, ratio analysis, industry analysis, etc. are take into consideration.

For fundamental analysis in the Forex futures, a trader has to be familiar with macroeconomic factors and forecasting principles.  A novice Forex futures trader has to understand several factors affecting a nation’s currency for learning how to trade in Forex futures.

These factors can be inflation or deflation rates, measures taken by the central banks, interest rate changes, business cycles, etc. Along with that, a Forex futures trader needs to learn economic indicators.

Final Thoughts

Trading cannot be bone without taking the risk, and the risk appetite varies for each trader. The essential element for traders in Forex future trading is to have sufficient knowledge and skills to perform and analyse technical as well as macroeconomic data.

Liquidity, lower risk, lower margin and regulated transparency make Forex futures trading very attractive. But traders should understand that if a lower margin leads to high profits, it can also lead to a higher loss. At the end, trading is a responsibility that you have to fulfil with at most care and risk management in place.

The future currencies of a market are regulate and dictates how each currency trader takes part in it. The movements are describe as ticks and each tick fluctuates in a predefined value. This article would help you understand the world of Forex futures and how to trade Forex futures.


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