Currency future stock

 

    Currency stock future is important of trending.Currency futures are an exchange-traded Futures contracts that specify the price in one currency at which another currency can be bought or sold at a future date. Currency futures contracts are legally binding and counterparties that are still holding the contracts on the expiration date must deliver the currency amount at the specified price on the specified delivery date. Currency futures can be used to hedge other trades or currency risks, or to speculate on price movements in currencies.

    Currency futures may be contrasted with non-standardized currency.forwards which trade over-the-counter (OTC).The first currency futures contract was created at the Chicago Marcantile Exchange (CME) in 1972 and it is the largest market for currency futures in the world today. Currency futures contracts are marked-to-market daily. This means traders are responsible for having enough capital in their account to cover margin and losses which result after taking the position.

 

History of currency futures.

   Currency futures were first created in 1970 at the International Commercial Exchange in New York. But the contracts did not "take off" because the Bretton wood system was still in effect. On 15 August 1971, President Richard Nixon abandoned both the gold standard and the system of fixed exchange rate. 

   Some commodity traders at the chicago Marcantile exchange  (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 established the international monetary market (IMM) and launched trading in seven currency futures on May 16, 1972.

Currency Futures Example

     Assume hypothetical company XYZ, which is based in the United States, is heavily exposed to foreign exchange risk and wishes to hedge against its projected receipt of 125 million euros in September. Prior to September, the company could sell futures contracts on the euros they will be receiving. Euro FX futures have a contract unit of 125,000 euros. They sell euro futures because they are a U.S. company, and don't need the euros. Therefore, since they know they will receive euros, they can sell them now and lock in a rate at which those euros can be exchanged for U.S. dollars. 

Example 1:Company XYZ sells 1,000 futures contracts on the euro to hedge its projected receipt. Consequently, if the euro depreciates against the U.S. dollar, the company's projected receipt is protected. They locked in their rate, so they get to sell their euros at the rate they locked in. However, the company forfeits any benefits that would occur if the euro appreciates. They are still forced to sell their euros at the price of the futures contract, which means giving up the gain (relative to the price in August) they would have had if they had not sold the contracts.

Example 2, buying a Euro FX future on the U.S. exchange at 1.20 means the buyer is agreeing to buy euros at $1.20 USD. If they let the contract expire, they are responsible for buying 125,000 euros at $1.20 USD. Each Euro FX future on the Chicago Mercantile Exchange is 125,000 euros, which is why the buyer would need to buy this much. On the flip side, the seller of the contract would need to deliver the euros and would receive U.S. dollars. 

How to uses in Currency futures.

Hedging

Investors use these futures contracts to hedge against foreign exchange risk. If an investor will receive a cashflow denominated in a foreign currency on some future date, that investor can lock in the current exchange rate by entering into an offsetting currency futures position that expires on the date of the cashflow.

For example, Jane is a US-based investor who will receive €1,000,000 on December 1. The current exchange rate implied by the futures is $1.2 /€. She can lock in this exchange rate by selling €1,000,000 worth of futures contracts expiring on December 1. That way, she is guaranteed an exchange rate of $1.2 /€ regardless of exchange rate fluctuations in the meantime.

Speculation

Currency futures can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates.

Example, Peter buys 10 September CME Euro FX Futures for €1,250,000 (each contract worth €125,000), at $1.2713 /€. At the end of the day, the futures close at $1.2784 /€. The change in price is $0.0071 /€. As each contract is over €125,000, and he has 10 contracts, his profit is US$8,875. As with any future, this is paid to him immediately.

About Currency Derivatives

The exchange launched its currency futures trading platform on 29th August, 2008. Currency futures on USD-INR were introduced for trading and subsequently the Indian rupee was allowed to trade against other currencies such as euro, pound sterling and the Japanese yen.

How can I buy currency futures in India?

Currency futures are traded on platforms offered by exchanges like the NSE, Bombay Stock Exchange (BSE), MCX-SX. Currency trading usually happens from 9.00 am to 5.00 pm. You need to open a forex trading account with a broker to do trading in the live currency market. You may not need to open a demat account.

Why Do People Use Currency Futures?

Currency futures are used to lock in an exchange rate over some period of time. This can be used to hedge foreign currency fluctuations, which is especially useful in international trade and among multi-national corporations.

Currency Futures is an important step towards full convertibility'

NSE managing director & CEO Ravi Narain tells Shruti Kohli that individuals account for nearly two-thirds of the volumes in Nifty futures and believes they will be active in currencies also.

What was the logic behind the launch of currency futures in India?

Both resident Indians and corporate entities are open to currency exposure, whether they buy or sell foreign currencies. Currency futures allow them to actively manage these risks. It also adds a key component to complete the suite of products available to resident Indians. Currency futures, which are settled in cash (in rupees), is an important step towards full convertibility.

What is the response of individual investors to currency futures?

The Indian market has a culture of strong retail participation in trading equities and commodities. In Nifty futures, individuals contribute 60-65% of the total volumes. We believe they will be active in currencies also. Individuals were involved on the first day, though in small numbers. Corporates and banks will continue to play a big role in the currency futures market.

Why believe in Currency future trending?Due to restrictions on the over-the-counter (OTC) market, entities running derived or indirect exposures have been unable to hedge through that channel. Making available a tool to this segment of users will contribute positively to overall risk management. Additionally, the margining and daily mark to market discipline is a strong risk management system. The first few days of trading show that the spreads on currency futures are far tighter than the spreads in the OTC market. This augurs well for both the markets.

What are Currency futures?

Currency futures are contracts to buy or sell a foreign currency at a future date at a predetermined price. Right now, only the US dollar futures can be traded.