Currency future

Foreign exchange

Exchange rates

* Currency band
* Exchange rate
* Exchange-rate regime
* Exchange-rate flexibility
* Dollarization
* Fixed exchange rate
* Floating exchange rate
* Linked exchange rate
* Managed float regime
* Dual exchange rate

Markets

* Foreign exchange market
* Futures exchange
* Retail foreign exchange trading

Assets

* Currency
* Currency future
* Currency forward
* Non-deliverable forward
* Foreign exchange swap
* Currency swap
* Foreign exchange option

Historical agreements

* Bretton Woods Conference
* Smithsonian Agreement
* Plaza Accord
* Louvre Accord

See also

* Bureau de change
* Hard currency
* Currency pair
* Foreign exchange fraud
* Currency intervention

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A currency future, also known as an FX future or a foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date; see Foreign exchange derivative.[1] Typically, one of the currencies is the United States dollar . The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

## Contents

* 1 History
* 2 Terms
* 3 Uses
* 3.1 Hedging
* 3.2 Speculation
* 4 See also
* 5 External links
* 6 References

## History

Currency futures were first created in 1970 at the International Commercial Exchange in New York. But the contracts did not "take off" because the Bretton Woods system was still in effect. On 15 August 1971, President Richard Nixon abandoned both the gold standard and the system of fixed exchange rates. Some commodity traders at the Chicago Mercantile Exchange (CME) did not have access to the inter-bank exchange markets in the early 1970s, when they believed that significant changes were about to take place in the currency market. The CME established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1972.

The CME actually now gives credit to the International Commercial Exchange (not to be confused with ICE) for creating the currency contract, and state that they came up with the idea independently of the International Commercial Exchange. Today, the IMM is a division of CME. In the fourth quarter of 2009, CME Group FX volume averaged 754,000 contracts per day, reflecting average daily notional value of approximately $100 billion. Currently most of these are traded electronically.[2]

Other futures exchanges that trade currency futures are Euronext.liffe and Intercontinental Exchange [1].

## Terms

For currency futures traded on the CME the conventional maturity dates are the IMM dates, namely the third Wednesday in March, June, September and December. The conventional option maturity dates are the first Friday after the first Wednesday for the given month.

More recently, serial months have been added. For instance, EUR/USD terms are now 20 consecutive quarters (5 years) plus 3 serial contract months.[3]

## Uses

### Hedging

Investors use these futures contracts to hedge against foreign exchange risk. If an investor will receive a cashflow denominated in a foreign currency on some future date, that investor can lock in the current exchange rate by entering into an offsetting currency futures position that expires on the date of the cashflow.

For example, Jane is a US-based investor who will receive €1,000,000 on December 1. The current exchange rate implied by the futures is $1.2 /€. She can lock in this exchange rate by selling €1,000,000 worth of futures contracts expiring on December 1. That way, she is guaranteed an exchange rate of $1.2 /€ regardless of exchange rate fluctuations in the meantime.

### Speculation

Currency futures can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates.

For example, Peter buys 10 September CME Euro FX Futures for €1,250,000 (each contract worth €125,000), at $1.2713 /€. At the end of the day, the futures close at $1.2784 /€. The change in price is $0.0071 /€. As each contract is over €125,000, and he has 10 contracts, his profit is US$8,875. As with any future, this is paid to him immediately.

More generally, each change of $0.0001 /€ (the minimum Commodity tick size), is a profit or loss of US$12.50 per contract.

## See also

* List of finance topics
* Forward contract
* Foreign exchange market
* Foreign exchange derivative
* Currency swap

## External links

* Quandl: Currencies Futures \- free, historical data in CSV, Excel, JSON or XML
* Currency Futures Contract Specifications and Tick Values at ExcelTradingModels.com
* Currency Trading at interjetvacations.com

## References

1. ↑ "Forex Futures Trading - What Are Forex Futures?". https://www.daytrading.com/forex/futures#what-are-forex-futures.
2. ↑ http://www.cme.com/about/press/cn/05-91June2005Volume13808.html
3. ↑ "Euro FX Futures EUR/USD Contract Specs". CME Group. https://www.cmegroup.com/trading/fx/g10/euro-fx_contract_specifications.html.

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Derivatives market

Derivative (finance)

Options|

| Terms|

* Credit spread
* Debit spread
* Exercise
* Expiration
* Moneyness
* Open interest
* Pin risk
* Risk-free interest rate
* Strike price
* the Greeks
* Volatility

|

Vanilla options|

* American
* Bond option
* Call
* Employee stock option
* European
* Fixed income
* FX
* Option styles
* Put
* Warrants

Exotic options|

* Asian
* Barrier
* Basket
* Binary
* Chooser
* Cliquet
* Commodore
* Compound
* Forward start
* Interest rate
* Lookback
* Mountain range
* Rainbow
* Swaption

Combinations|

* Collar
* Covered call
* Fence
* Iron butterfly
* Iron condor
* Straddle
* Strangle
* Protective put
* Risk reversal

Spreads|

* Back
* Bear
* Box
* Bull
* Butterfly
* Calendar
* Diagonal
* Intermarket
* Ratio
* Vertical

Valuation|

* Binomial
* Black
* Black–Scholes model
* Finite difference
* Garman–Kohlhagen
* Margrabe's formula
* Put–call parity
* Simulation
* Real options valuation
* Trinomial
* Vanna–Volga pricing

Swaps|

* Amortising
* Asset
* Basis
* Conditional variance
* Constant maturity
* Correlation
* Credit default
* Currency
* Dividend
* Equity
* Forex
* Forward Rate Agreement
* Inflation
* Interest rate
* Overnight indexed
* Total return
* Variance
* Volatility
* Year-on-Year Inflation-Indexed
* Zero Coupon Inflation-Indexed
* Zero Coupon Swap

* Forwards
* Futures

* Contango
* Currency future
* Dividend future
* Forward market
* Forward price
* Forwards pricing
* Forward rate
* Futures pricing
* Interest rate future
* Margin
* Normal backwardation
* Single-stock futures
* Slippage
* Stock market index future

Exotic derivatives|

* Energy derivative
* Freight derivative
* Inflation derivative
* Property derivative
* Weather derivative

Other derivatives|

* Collateralized debt obligation (CDO)
* Constant proportion portfolio insurance
* Contract for difference
* Credit-linked note (CLN)
* Credit default option
* Credit derivative
* Equity-linked note (ELN)
* Equity derivative
* Foreign exchange derivative
* Fund derivative
* Interest rate derivative
* Mortgage-backed security
* Power reverse dual-currency note (PRDC)

Market issues|

* Consumer debt
* Corporate debt
* Government debt
* Great Recession
* Municipal debt
* Tax policy

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