Forex Trading Currency Futures in 2019

by | Sep 22, 2019 | Forex Trading |

Forex Trading Currency Futures in 2019

Trading Currency Futures vs Forex

Have you ever taken a family trip and exchanged your currency? Did you exchange that foreign currency back when you landed back home? When you swapped your currency to a foreign currency and back you engaged in Forex trading. Forex trading is short for Foreign Exchange Trading and is the act of swapping your currency for another currency. Forex traders do this in hopes of beating the market and making money over a given period of time. This form of trading is very popular, but there are actually other ways that you can trade currencies. One method of trading currencies is trading currency futures.

Trading currency futures is slightly more complex. All currency futures are priced in U.S. dollars and have a date that they expire. Currency futures, or FX futures, essentially represent the value of a certain currency at the time of its expiration.

Like most trading, both Forex trading and currency futures are safe investments that are regulated by financial authority figures. If you lock in a trade for either, the only worry you should have of losing money is if the selected currency goes down in value.

However, which type of trading should you be engaging in to make the greatest returns? While both of these trading strategies include currencies, there are several poignant distinctions between them.

Forex Trading Pros:

  • Liquidity is much higher
  • Do not have to worry about expiration dates
  • the market is always open because the daily market does not close

Currency Futures Pros:

  • There are no carry costs
  • The pricing is all upfront and all-inclusive
  • Hedging is much easier with FX futures than Forex trading


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What Is A Currency Futures Contract?

A currency futures contract is a contract that you agree to, that says you are going to buy a certain currency, at a certain price, at a certain time.

There is an expiration date that is attached to each currency futures contract, and when it expires the agreed-upon trade must go through. However, many traders actually trade their currency futures contract prior to expiry.

How Do You Trade Currency Futures?

  1. You have to open an account to trade current futures on an exchange.
  2. You need to have enough capital in your account to get started. This minimum amount of capital is called the margin. The margin is often less than the capital required for trading stocks, but at a minimum, it will be a few thousand dollars.
  3. On the exchange, purchase a currency contract that you believe will make you a profit on the expiration date.
  4. Monitor the movement of the currency pair that you are trading, and be vigilant and ready to trade your currency future.
  5. Either wait until the currency future expires, or trade the currency future at an earlier date to generate a profit.

Features Of Currency Futures

Throughout the article, we have touched upon the features of currency futures, but there is a reason that some seasoned traders prefer it to Forex Trading.

  • Forward contracts are more expensive than currency futures because FX futures require only a small commission payable.
  • The credit risk is taken on by the clearing house instead of the parties involved in the trade.
  • Expiration dates, for the most part, are quarterly. However, most contracts are closed out prior to the delivery date.
  • Currency futures can be liquidated before the expiration date.
  • In comparison to other types of trading, currency futures are inflexible and can only be traded in major currencies.
  • A margin is required with most exchanges to conduct currency future trades.

Though many of the features of currency futures are different from traditional Forex trading, the basics of both styles of trading are the same.

Any trading technique requires discipline and broad knowledge of market indicators to execute the right decisions.

How Do You Calculate Futures Profit?

Calculating the profit from a Futures Contract is relatively straightforward. The price you buy the Futures Contract must be less than the price you sell the Futures Contract. Be sure to take into account the commission and market fees while calculating your profits. Another thing to note is that money today is always better than money tomorrow. If you are deciding between a Futures Contract that is likely to generate a profit within the next few weeks versus a Futures Contract that will yield profits in half a year, the Futures Contract that expires earlier is a better investment. This is because having that money at an earlier date allows you to either re-enter the market or allocate those funds in a different way to continue to make money.

What Is The Difference Between Futures And Forwards?

Futures and Forwards have more similarities than differences. They are both financial contracts that two parties need to agree upon. They both pertain to currencies. They are both risky because one side can fail to follow through on their side of the arrangement.

There are two key distinctions between Futures and Forwards.

  1. Futures contracts are more standardized while Forwards contracts are privately negotiated.
  2. Forwards are privately traded over the counter, while futures are primarily traded on exchanges

These may seem like two negligible differences, but the ramifications are important to consider. As we stated earlier, every single contract is not foolproof, as there is always a chance that one side can fail to hold their end of the bargain. When the time of the settlement comes, whether it is the fault of the participant or not, there could be complications that force one side to renege on their side of the agreement.

In a Futures Contract, the amount of risk is considerably lower. This is because the clearing house positions itself as the counter-party to all participants in the contract. Furthermore, all participants are required to post and maintain their margins on the exchange. These two aspects dramatically reduce the credit risk in a Futures Contract, and instances of foul play are extremely rare.

Forwards Contracts do not have either of the features that were mentioned above. Without a clearing house or margins, Forward Contracts are significantly riskier. Forward Contracts also can only be settled at the expiration date, which increases the chance that you may lose money simply from a default.

While they are both contracts that can generate profits for a professional trader, if you are looking for a style of trading that is more regulated, we suggest starting off with Futures contracts.

Is It Worth Getting Into Forex Trading?

After learning about these Futures and Forwards contracts, it may be tempting to just get into Forex Trading. After all, Forex Trading is the most popular form of trading involving currencies and has a much higher liquidity.

Choosing the right style of trading is a personal preference, and many traders do not stick to one form of trading. If you choose to start trading Futures, Forwards, or Forex; you always have the choice to switch trading styles if you are looking for a different experience.

The only advice we have is not to choose a certain style of trading, but to at least learn about each style of trading.

Is Forex Trading High Risk?

Forex Trading is not a high-risk investment because you are dealing with financial exchanges that are regulated. Other forms of trading have had instances of defaulting or even fraud, but Forex trading is a popular form of trading that has much less inherent risk.

The trading philosophies that you hold dictate the risk you are taking on rather than the trading style. Whether you are trading Forex or Futures if you are betting 10% of your capital on every trade the risk you are taking on will always be enormous. If you continue to stay disciplined and trade 1-2% of your capital on every trade, Forex trading will not be high-risk and has a decent chance of making you consistent returns.

Can I Make A Living Trading Forex?

In short, yes you can. However, the exact amount of money that you can make is solely dependent on your skills as a trader and your disciplined mindset.

Thousands of traders are quitting their jobs to religiously study market indicators and spend hours studying charts. To consistently generate profits, you will have to regularly beat these traders and execute the correct trades. The Forex market is worse than a zero-sum game, and we highly recommend having a basic understanding of the fundamentals before quitting your day job and choosing to trade full-time.

These anxieties are offset by several benefits but none more important than this. As a trader, you are solely responsible for your own destiny. If you are able to beat the market, the market will reward you handsomely. If you make an incorrect prediction, you will be burned. The same reasons that trading is frowned upon by some, are the reasons that trading is so exciting to others.

Can you make a living trading Forex? Absolutely.

Are you ready? That is something only you can decide.

Currency Trading Basics

Currency Trading Basics


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