Forex Futures Market
Forex futures originated from the agriculture market. This was in the 19th century. It so happened then that farmers began selling contracts to provide agricultural products at a future date. They did this for two reasons – to predict market needs and to stabilize the demand and supply during off seasons.
Today’s Forex futures market has extended beyond agriculture products. It has become a worldwide market for all kinds of products, which includes agricultural commodities, manufactured goods, and financial tools like treasury bonds and currencies.
When speculators play in Forex futures market, it’s the contract they trade that holds more importance than the actual commodity for which they trade. The value of contracts changes continuously, throughout the day as speculations change on the value of commodity.
Understanding Futures Trading
Every future contract comprises of a buyer and seller. The former takes a long position while the latter takes a short position. The contract stipulates a buying price, a particular quantity of commodity, and its delivery date.
The hope of speculators lies in the daily fluctuations in the Forex futures market.
* They buy long, if they speculate a rise in price. (This means they buy from the buyer)
* They buy short, if they speculate a fall in price. (This means they buy from the seller)
Accounts in futures trading are settled daily. When the contract period expires, the contract gets settled itself. The final contract buyer, at this time, can take delivery of his commodity. Again, he or she has the choice to start the entire process from square one by creating a new contract.
Risks Involved In Forex Futures Trading
* Forex futures market is less liquid, as it is open for just 7 hours everyday. Therefore, traders have to wait for the futures market to open to grab a trading opportunity.
* Traders have to pay a specific sum as brokerage or commission for each futures transaction they carry out.
* The forex futures market brokers generally quote prices that reflect the last trade. It may not necessarily be the price of commodity transaction. Thus, there are increased risks of slippage as well as uncertainty in prices.
* Due to the slippage risk and market gap, final prices are always a bit uncertain in futures trading. This makes Forex futures trading riskier overall.
You need to be thoroughly clear with the entire working of the futures trading system before jumping into this field. However, once you are in, there’s lots of excitement and speculations that will make your heart beat in frenzy. But, if you are strong-hearted, have enough capital; possess a fair idea of futures market, then futures trading is worth a try.
