Currency Futures / Aussie

Futures contracts currency exchange

A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125, 000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

History[edit]

Currency futures were first created in 1970 at the International Commercial Exchange in New York. But the contracts did not "take off" due to the fact that the Bretton Woods system was still in effect. They did so a full two years before the Chicago Mercantile Exchange (CME) in 1975, less than one year after the system of fixed exchange rates was abandoned along with the gold standard. Some commodity traders at the CME did not have access to the inter-bank exchange markets in the early 1970s, when they believed that significant changes were about to take place in the currency market. The CME actually now gives credit to the International Commercial Exchange (not to be confused with ICE for creating the currency contract, and state that they came up with the idea independently of the International Commercial Exchange). The CME established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1975. Today, the IMM is a division of CME. In the fourth quarter of 2009, CME Group FX volume averaged 754, 000 contracts per day, reflecting average daily notional value of approximately $100 billion. Currently most of these are traded electronically. [2], Tokyo Financial Exchange [3] and IntercontinentalExchange [4].

As with other futures, the conventional maturity dates are the IMM dates, namely the third Wednesday in March, June, September and December. The conventional option maturity dates are the first Friday after the first Wednesday for the given month.

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Popular Q&A

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What is the difference between foreign exchange and currency futures

Foreign Exchange (Forex) is everything that has to do with converting one currency to the other. You often see foreign exchange market, foreign exchange transaction, foreign exchange rate.
Foreign exchange rate is simply a rate at which you can convert one currency to the other, a price of one currency expressed in the other currency.
For example if you see EUR/USD 1.30, this means you can buy one Euro for 1.30 US Dollars. 1.30 is the eur/usd forex rate.
Futures are financial contracts that set the price for delivery in the future. There are futures on almost all asset classes, including c…

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