DEFINITION of 'Forex Futures'
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| FOREX IS FUTURE |
An exchange-traded contract to shop for or sell a given quantity of a given currency at a planned value on a group date within the future. All forex futures area unit written with a particular termination date, at that purpose delivery of the currency should occur unless associate compensatory trade is formed on the initial position.
BREAKING DOWN 'Forex Futures'
Forex futures serve 2 primary functions as monetary instruments. First, they'll be utilized by corporations or sole proprietors to get rid of the exchange-rate risk inherent in cross-border transactions. Second, they'll be utilized by investors to invest and benefit from currency exchange-rate fluctuations.
BREAKING DOWN 'Currency Futures'
Because currency futures contracts area unit marked-to-market daily, investors will exit their obligation to shop for or sell the currency before the contract's delivery date. this is often done by closing out the position. the costs of currency futures area unit determined once the contract is signed, even as it's within the forex market, solely and therefore the currency combine is changed on the delivery date, that is sometimes your time within the distant future. However, most participants within the futures markets area unit speculators WHO typically shut out their positions before the date of settlement, therefore most contracts don't tend to last till the date of delivery.
Difference Between Spot Rate and Futures Rate
The currency spot rate is that the current quoted rate that a currency combine may well be bought or sold . If associate capitalist or hedger conducts a trade at the currency spot rate, the exchange of the currency combine could happen at the purpose at that the trade passed off or shortly when the trade. Since currency forward rates area unit supported the present currency spot rate, currency futures may well be considerably affected if currency spot rates modification.
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