Currency Futures

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DEFINITION of 'Currency Futures'

A transferable futures contract that specifies the price at which a currency can be bought or sold at a future date. Currency future contracts allow investors to hedge against foreign exchange risk.




BREAKING DOWN 'Currency Futures'

Because currency futures contracts are marked-to-market daily, investors can exit their obligation to buy or sell the currency prior to the contract's delivery date. This is done by closing out the position. With currency futures, the price is determined when the contract is signed, just as it is in the forex market, only and the currency pair is exchanged on the delivery date, which is usually some time in the distant future. However, most participants in the futures markets are speculators who usually close out their positions before the date of settlement, so most contracts do not tend to last until the date of delivery.

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RELATED FAQS
  1. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  2. How do I set a strike price in foreign exchange trading?

    In trading with a foreign exchange, a trader can set a strike price for a currency pair by entering a limit order or a stop ... Read Full Answer >>
  3. What is the difference between trading currency futures and spot FX?

    The forex market is a very large market with many different features, advantages and pitfalls. Forex investors may engage ... Read Full Answer >>
  4. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  5. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  6. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>

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