What are currency futures?
A currency future is a contract that details the price at which a currency could be bought or sold, and sets a specific date for the exchange.
They are highly regulated, and any counterparty still holding the contract at the expiration date is legally bound to take delivery of the currency on the given date and at the given price.
Currency futures are a exchange-traded futures contract that specify the price in one currency at which another currency can be bought or sold at a future date.
Pakistan Mercantile Exchange (PMEX) offers trade in major Currency Futures, along with other currencies cross pairs
Currency Futures
Difference between Spot and Futures
Why Trade Currencies
A country with a strong economy and lucrative investment opportunities will typically have a strong currency because global companies and investors want to buy into that country’s investment opportunities.
The two key factors affecting a currency’s value are central bank monetary policy and the trade balance. An easy monetary policy (low interest rates) is bearish for a currency because the central bank is aggressively pumping new currency reserves into the marketplace and because foreign investors are not attracted to the low interest rate returns available in the country.
By contrast, a tight monetary policy (high interest rates) is bullish for a currency because of the tight supply of new currency reserves and attractive interest rate returns for foreign investors.
A current account surplus is bullish for a currency due to the net inflow of the currency, while a current account deficit is bearish for a currency due to the net outflow of the currency. Currency values are also affected by economic growth and investment opportunities in the country.
Australian Dollar
The Australian Dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu. Within Australia, it is usually abbreviated with the dollar sign ($), with A$ sometimes used to distinguish it from other dollar-denominated currencies. It’s subdivided into 100 cents.
With pounds, shillings and pence replaced by decimal currency on February 14, 1966, many names for the new currency were suggested. In 1965, the Prime Minister, Sir Robert Menzies wished to name the currency the royal. Other proposed names included the austral, the oz, the boomer, the roo, the kanga, the emu, the digger, the kwid, the dinkum and the ming (Menzies’s nickname). Menzies’s influence resulted in the selection of royal, but the name for the currency proved unpopular and was later dropped in favor of the dollar.
The Australian Dollar futures contract provides a vehicle to assess the relative value of the U.S. Dollar compared to the Australian Dollar, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates.
British Pound
The British Pound (or pound sterling) is the world’s oldest currency still in use, dating back to Anglo-Saxon England in the middle 8th century. It’s the official currency of the United Kingdom, its Crown Dependencies, and the British Overseas Territories. The pound is the fourth most traded currency in the foreign exchange market after the U.S. Dollar, the Euro, and the Japanese Yen. It’s also the third most held reserve currency on the global reserves.
The British Pound currency futures contract provides a vehicle to assess the relative value of the U.S. Dollar compared to the pound, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates.
Canadian Dollar
Before the Canadian Parliament established the Canadian Dollar in 1871, practically every province was conducting transactions in local currencies. Today, the Canadian Dollar value has floated ever since 1970 and is the seventh most traded currency in the world. Just as in the U.S., slang for a dollar is a “buck”, which dates back to the same term used to describe the value of a beaver pelt in the 17th century.
The Canadian Dollar futures contract provides a vehicle to assess the relative value of the U.S. Dollar compared to the Canadian Dollar, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates.
Euro Currency
The Euro currency was introduced in 1999 as the single currency of the European Union. Today, the Euro is shared by 17 countries and is the second most traded currency in the world after the United States Dollar.
A country with a strong economy and lucrative investment opportunities will typically have a strong currency because global companies and investors want to buy into that country’s investment opportunities.
The Euro currency futures contract provides a vehicle to assess the relative value of the US dollar compared to the Euro, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates.
Japanese Yen
The Meiji government made the Yen the official Japanese currency in 1871, after years of an overly complex currency system in the Edo period. Ever since the Bretton Woods system collapsed, and the monetary system switched to floating exchange rates, the value of the Japanese Yen has similarly floated ever since. However, because of its floating exchange rate, the Japanese Yen is considered extremely volatile.
The Yen is the third most traded currency in the world, most likely due to the fact it is considered undervalued compared to the US Dollar and British Pound. The two key factors affecting a currency’s value are central bank monetary policy and the trade balance.
The Japanese Yen futures contract provides a vehicle to assess the relative value of the U.S. Dollar compared to the Japanese Yen, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates.
Swiss Franc
The Swiss Franc, created in 1798 by Swiss cantons, was made the official monetary unit of Switzerland and Lichtenstein in 1859 after the issue of money was restricted to the federal government. Considered one of the world’s strongest currencies, the Swiss Franc is popular for its low volatility and its low correlation with returns on foreign assets. Historically considered a ‘safe-haven currency’, the Swiss Franc has almost zero inflation. As the sixth most traded currency in the market, the Swiss bank notes have all four national languages printed on them including German, French, Romansh, and Italian.
The Swiss Franc futures contract provides a vehicle to assess the relative value of the U.S. dollar compared to the Swiss Franc, manage risks associated with currency rate fluctuations in the currency markets and to take advantage of profit opportunities stemming from changes in rates. The Swiss Franc denoted as CHF at times, stands for the Confoederatio Helvetica Franc.
U.S. Dollar Index
The U.S. Dollar Index futures contract is a leading benchmark for the international value of the U.S. Dollar and the world’s most widely recognized traded currency index. In a single transaction the contract enables market participants to monitor moves in the value of the U.S. Dollar relative to a basket of world currencies, as well as hedge their portfolios against the risk of a move in the dollar.
The U.S. Dollar Index futures contract began trading on November 20, 1985 on the Financial Instruments Exchange, a division of the New York Cotton Exchange. The index was originally a geometrically weighted average of ten different currencies, with each currency representing a country that was a major trading partner with the United States. Currently, the index is a geometrically weighted average of six currencies: Euro, Yen, Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.
