Forex Futures Trading

Forex futures trading has risen in popularity over the post five to seven years throughout American and Europe and has become one of the more popular forex trading mechanisms along with spot trading to emerge within the past decade. Forex futures trading is essentially a reference to the kind of trading that takes place on the forex markets when a particular party agrees to purchase or eliminate a specific currency at a predetermined price point or date in the future. In forex futures trading the actual arrangement is backed up by a contract that will specify the exact terms all parties must adhere to before the actual transaction take place on a certain date or at a certain price point.

The foreign exchange market also known as fx, or forex is by far the largest market in the world averaging over 1.5 trillion dollars in trading activity per day, yes per day. The forex futures market is a kind of derivative market that only makes up only about one one-hundredth of the size of the entire market. Forex futures are defined by the inherent mechanism behind futures trading, and trading futures can be very different from only dealing in more conventional trading.

The pure definition of forex futures trading relies on the agreement between parties that make it explicitly known that an exchange will take place when a particular currency reaches a certain price point at a specific date at some point in the future. Forex futures are a bit strange because in reality neither party is actually purchasing anything at the time the contract is created. What really is happening doesn’t involve the purchase of anything and is really more of an establishing of a mutual agreement between the participating parties.

If you are considering trading in forex futures then you should be interested in the differences between spot forex trading and trading futures as both have become increasingly popular over the past five to seven years or so. They both are fairly similar although there are some key differences that you should pay attention to if you are serious about profiting with forex futures.

The spreads in futures and spot markets are a bit different from each other, with the futures market not being fixed and at the same time being highly reliant on the overall liquidity present in the market. When it comes to commissions, futures offer their dealers a commission at around three dollars per side while in spot there are no real commissions paid to dealers. Spot forex really delivers in terms of flexibility over futures in that with spot the actual lot size can be broken down into smaller lot sizes that may give the right kind of investor a serious advantage. In futures there are only two lot sizes—the full-size contract and the mini-contract to choose from.

When it comes to carrying charges and any roll-over interest charges the futures market can offer a significant advantage over the spot markets. This is due mostly to the fact that the premiums generated via the roll-over on futures is more than with spot and this can make things less noticeable overall. The futures market also has an advantage over the spot market in terms of transparency. With futures trading the open interest, orders, grand flow, and mass volume can be readily apparent right off the bat while in spot it can be a little bit harder to perceive. Trading forex futures can be highly lucrative if done correctly so don’t hesitate to give it a try once you have become familiar with the underlying fundamentals.