The opportunities in currency trading have never been better, globally the average trading volume attributed to the foreign exchange market now stands at over $5 trillion. This makes Forex one of the biggest markets in the world. Now, within this foreign exchange market lies an emerging class of derivative securities known as Forex futures. In this piece, we will define and describe this type of futures, we will also describe the instances and scenarios where they apply, giving you the necessary tools to effectively negotiate contracts in this Forex futures space.
Futures clearing houses do require a the participating individual, this deposit is called a margin. Margins in the Forex futures space differ significantly from that in the stock market. In Forex futures, the margin is simply an initial amount of money that is deposited to meet the minimum requirement, no borrowing is involved, in fact the margin is a form of good-faith payment that serves as assurance that participants in the trade would meet their obligations whereas in the stock market, the margin refers to a loan given by the broker to the client based on the value of the client’s current portfolio. Another difference of note is that unlike in the stock market, the initial margin required in a futures trade is low, typically the margin for futures tend to be at or below 10% of the futures price.
You will need an exchange to trade Forex futures. Forex futures can be traded at exchanges all around the world. One of the most popular exchanges for trading it is the Chicago Mercantile Exchange (CME) group, the exchange features the highest volume of outstanding Forex futures contracts. Forex, much like any other futures contract, can be traded in an open out-cry system via live traders on the pit floor or entirely via electronic means with your internet enabled computer. As of this year, the open-outcry system is being phased out in Europe and replaced by electronic trading. As mentioned earlier, in terms the total number of Forex contracts traded, the Chicago Mercantile Exchange group has the highest volume of trades with 3.16 billion contracts in total for the year 2013. The Intercontinental Exchange and Eurex follow closely behind at 2nd and 3rd places, respectively, at 2807.97 and 2190.55 billion contracts traded. This shows that the bulk of the Forex futures contracts trades are made through the CME group and its subsidiaries and intermediaries.
FX futures markets also features what is called a mini-contracts, these mini’s stand at half the price of the regular futures contracts. Another product is the E-minis, these are about a tenth of the price of a regular contract. These E-minis offer a great opportunity for new traders to get involved with Forex futures at reduced risks, and are popular because of their increased liquidity and accessibility due to the lower margin requirements. The contracts trade 23 hours a day, Monday to Friday, around the world.