Forex futures are exchange traded contracts to buy or sell a certain amount of any currency. The trading price of a currency is set according to a future price on a set date. A currency futures contract is traded with a specific termination date, after which a trader has to sell it.
How to Trade Forex Futures
Traders need to implement a risk and money management plan before trading forex futures. Forex futures may be traded as follows:
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Forex futures trading works on the short selling mechanism. Traders need to be cautious about currency pairs. They should not expose themselves to a high exchange rate risk. ·
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Traders need to open an international brokerage account and trade on domestic exchanges such as, the London Stock Exchange, and Dubai Gold and Commodities Exchange. ·
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Forex traders should use price charts and other indicators to predict the future price of any currency. These indicators guide a trader to evaluate the value and ‘selling position' of a currency correctly.
Forex Futures: Benefits and Drawbacks
Forex futures serve the following purposes:
- Investors trade forex futures to hedge against the exchange-rate risk.
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Futures are used by forex traders as speculations to earn profit from currency rate fluctuations.
Forex futures traders earn high returns 80% of the time, depending on the number of currency pairs offered by the broker.
The disadvantages of forex futures are: ·
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When compared with forex futures, forex cash traders operate on lower margin and generate higher profits. The short selling position of futures increases its volatility. ·
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The cash value of a currency is quoted inversely in the forex futures trade. This makes it difficult for an average investor to understand and use. ·
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Calculations for the prices in forex futures trading are complicated. It takes into account the time factor, interest rates and disparities of different currencies. ·
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Brokerage fees of forex future trading include trading commissions, trade fees and defrayal fees. This makes currency trading highly charged.
Forex futures price movements are based on speculations. The probability of huge losses in currency futures trading is significant.
