In this article we will talk about such an important tool for a currency trader as currency futures.
Many may be surprised and ask “Why should you pay attention to currency futures?”. Answering this question will be a fairly simple task – tracking the volume of trading on the futures market allows the trader to extrapolate these volumes to the spot market. As almost everyone knows, forex is essentially an over-the-counter market, i.e. a set of clearers around the world trading obligations denominated in various currencies. Tracking the volume of trading on the spot is usually limited to the volume of trading inside the dealing center where the trader has an account. However, futures and currency options are just that part of the currency markets, trading on which is carried out according to exchange principles.
Currency futures is a standardized contract for the purchase of a certain amount of the base currency in a certain month. Dealing on such instruments is conducted almost around the clock with a short break from 01:00 to 02:00 Moscow time. Futures are traded mainly on CME, Globex and Symex. It is necessary to understand that-trading currency contracts on the futures market is far from forex for beginners. Brokers that provide the opportunity to trade futures on currency usually set higher thresholds for making initial deposits (at least 10 thousand US dollars) than DC on spot markets, however, this in no way makes futures trading less attractive.
Advantages of futures trading over spot market trading:
- The trader does not have to pay the spread.
- He can place buy orders on the bid and sell orders on the ask.
- The trader sees the depth of the market, since an organized market contains a publicly available book of buy and sell orders at various prices.
- A trader in currency futures can cover the risks of currency appreciation or depreciation in the period he needs.
- The futures market is considered to be cleaner than the spot market, since it contains only quotes from market participants, without any corrections by the dealing center for the vision of an objective price.
- A trader trading in currency futures may not worry about the overlap of his positions on the part of the dealing center, since brokers who provide access to trading on the futures market prefer to earn exclusively on turnover – a small fraction of the turnover of the amount will be written off from the client’s account when each transaction is completed.
However, in order to successfully trade currency futures, it is necessary to remember that all contracts are standardized and have permanent designations. The futures formula is written as follows: “CURRENCY (denoted by two letters)” “EXPIRATION MONTH (denoted by the letter corresponding to the month – see below) “EXPIRATION YEAR (denoted by 1 last digit of the year)”. For example, the BP M0 contract is a futures contract for the purchase of 62,500 British pounds in June 2010. Or, say, 2020, 2030 – any year ending at 0. Another question is that even ten-year futures are not traded. Therefore, in the conditions of market realities, BP M0 is definitely a contract for the purchase of 62,500 pounds sterling for dollars in June 2010.
At the same time, it is necessary to know that calculations on this futures are made 1st time on the date of the transaction, and 2nd time on the expiration date.
Designation of futures currency contracts:
- EU XX – 125,000 euros (quoted against the US dollar)
- BP XX – 62,500 pounds sterling (quoted against the US dollar)
- JY XX – 12,500 000 Japanese yen (quoted against the US dollar)
- SF XX – 125,000 Swiss francs (quoted against the US dollar)s
- CA XX – 100,000 Canadian dollars (quoted against the US dollar)
- DA XX – 100,000 Australian dollars (quoted against the US dollar)
- NE XX – 100,000 New Zealand dollars (quoted against the US dollar)
- RU XX – 2,500,000 Russian rubles (quoted against the US dollar)
Margin for opening positions on these contracts It ranges from $4,000 to $6,000, while the necessary margin to maintain the position is estimated in the range of $3,000-$6,000. Also, to complete the picture, it is necessary to provide data characterizing the expiration month of these contracts:
- January – F
- July – N
- February – G
- August – Q
- March – H
- September – U
- April – J
- October – V
- May – K
- November – X
- June – M
- December – Z
Thus, you can visit the Chicago Mercantile Exchange website or the Globex website at any time and see the trading volumes on the date you are interested in. I must say that about ten years ago, currency futures gave forex traders the opportunity to obtain arbitration (a trader could profitably conduct transactions with the same instrument on the futures and spot markets), however, at the moment the level of development of trading technologies allows trading robots to make permanent arbitrage transactions on futures.
Trading algorithms, as a rule, use the maximum available amount of market liquidity to conduct arbitration, therefore, arbitration is practically impossible for ordinary traders. However, it is the regulatory impact of these robots that forces the currency markets to adhere to the same prices, as well as opportunities for extrapolating trading volumes from the futures market to the spot market.. To do this, use the feedback form (you need to register).
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