Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
They are highly regulated, and any counterparty still holding the contract at the expiration date is legally bound to take delivery of the currency on the given date and at the given price.
A futures price differs from a spot price as it is not based on a current market value, but a potential market price in the future. If an investor has a trade on a spot currency rate, they may use a currency futures contract to hedge against foreign exchange risks.
Both currency futures and currency forward contracts are financial derivatives that allow people to buy and sell currency pairs at a specific time and at a given price. Though they are similar in nature, they operate with a few key differences:
| Currency futures are… | Currency forwards are… |
| Traded on an exchange | Traded over-the-counter |
| Highly standardised transactions with legally binding terms and conditions | Privately negotiated and specific to individual traders needs |
