currency futures
currency futures contracts are agreements on an exchange rate of two currencies at a fixed date in the future. They allow market participants to manage risk by buying or selling the currency futures, opposite the existing positions in the cash market. It gives the opportunity to offset the gains/lossesreceived and a result of cash transactions, losses/gains in the futures market.
currency futures - a forward transaction with standard sizes and terms of which are traded in the official áèðæàõ. currency futures is an obligation to buy or sell one currency against another according to the agreed exchange rate at a certain date in the future.
currency futures are traded such exchange and the Chicago Mercantile exchange (CME). The international monetary exchange of Singapore (SIMEX) and Urgent financial exchange in Paris (MATIF).
Traded on the stock exchanges of currency futures contracts are characterized by the following:
1. standard spec - unit of trade, the trade cycle in months, the date of delivery, quote, the minimum price change, etc.;
2. possibility to trade the tool and make îôôååòíûå operation, that is to repay the original contract an equal and opposite deal. Delivery is made only for a small part of the contracts (less than 3%);
3. public market - the prices of contracts are easily accessible. Auctions are held in the hall of the exchange by open outcry, the prices are displayed on the notice-Board in the stock exchange, published in the financial press and the suppliers of financial information, as Reuters;
4. the fact that the counterparty to both sides of the transaction is the clearing house. The buyer and the seller does not conclude a contract directly. Clearing chamber, therefore, assumes the credit risk associated with the possibility of default of one of the participants of the transaction. This means that the creditworthiness of any authorised by the market participant meets the requirements of the clearing house, and, consequently, big companies or investors do not have the advantages of the small size.
In the case of the expiry of currency futures is the delivery, in the course of which one of the parties of the contract receives / pays a single currency, and the opposite - receive/pay another currency.
As is determined by the price of the currency futures
The prices of currency futures are closely linked to the spot rates of the foreign exchange market, and the difference between them is determined by the difference delivery dates. This difference is called the swap space and is defined as follows:
Swap = Futures price - the Spot price.
Swap the value of financing urgent position in one currency against the other during the period between the dates of the transaction and delivery and depends on the interest rate differential of the two currencies. As we approach the date of delivery on a futures contract swap tends to zero. In the end, that is, at the date of delivery, the price of the futures contract is equal to the spot rate.
The work of currency futures
Currency futures are traded on the stock exchange, which is a counterparty and the buyer and seller in each contract. Buyers and sellers should make to the clearing house of the exchange guarantee Depositò or marginó in the amount ensuring coverage of potential losses resulting from changes in the value of the futures contract.
The initial margin is usually set as a percentage of the contract value and is recalculated every day. Depending on the direction of movement in the participating parties or receive payments from the clearing house, or introduce additional amount, or a variation margin. Such a system maintain the size of the guarantee Deposit allows you to limit the credit risk for both parties, that is, and for the trader, and for the stock exchange, the daily change in the value of the transaction, which is below the potential change for the entire term of the contract.
Operations on margin is an example of the so-called leverage, or leverage. Lever allows investors to operate with a large contingent amounts at the introduction of the guarantee Deposit of only a small part of the contract value. The result of this may be very large relative to the real size of investments profit and loss can be no less! For example, the margin size of 31 000 allows to Finance the forward position in the foreign exchange market, equivalent to 310 000.
In volatile markets using the lever of the traders who do not have sufficient capital to cover the margin payments, may lead to bankruptcy.
