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Traditional Futures vs Forex Futures

by Danijel
Forex Futures vs Traditional Futures

Forex Futures vs Traditional Futures

It doesn’t take a genius to figure out that Forex futures and traditional futures are not quite the same thing. With Forex market being one of the largest financial markets in the world, and still growing at that, people might soon start writing about how to differentiate other futures from Forex futures.

Futures are traditional futures, right?                                               

Right. And wrong. Yes, both of them work pretty much the same way: you purchase a contract to buy or sell something. The transaction details are arranged in advance, and fixed. The price, date and quantity are all defined and agreed upon. Just one thing, though: traditional futures are traded on a centralized market, while Forex futures are not. The latter are traded on several exchanges which, even though they are not unified or over-the-counter, still retain some connections between them and there are some general rules that apply to all of them. That, and Forex futures only deal in currencies.

Forex futures

Forex futures deal in currencies rather than commodities and assets in a general sense. The aforementioned rules state that, when entering a futures contract, your broker is obligated to provide you the details of the transaction in advance, as well as to make sure you understood the implications. Even if that were not the case, it might behoove you to keep appraised of “small” details such as the size of your contract, its time period, trading hours, sample quote, ticks, exact prices and their limits as well as any other detail that might affect your bottom line. These are all important: the contract size determines the amount you need to pay, last trading day is the exact date when trading ceases, position limits determine how many positions can you own before you become obligated to provide info on your trading goals and strategy (and not just you, these rules apply to any and all) etc. Some of these elements are present in regular futures as well, while others are not.

Why do people use Forex futures?

Forex futures, like any other Forex derivative, are usually used for speculating and hedging purposes. Both are dealing with risk, albeit with different intent. Speculators welcome risk, as a means of turning a profit. They are well-suited for sudden changes and make most money on them. On the other hand, the whole purpose of hedging is to eliminate this very risk. Those who find current conditions agreeable will try to preserve them for as long as possible. This applies on traditional futures as well, although the possibility for abuse is higher in Forex futures.

Conclusion

Whether they are used to lock in profit or make use of the market’s volatility, both Forex and traditional futures are a common sight in today’s markets. They may be traded in different markets, under different conditions and yielding different profits and results, but the fact is: Forex futures are here to stay, and with markets going the way they are, they are here to stay.

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