Forex Futures Trading

The foreign exchange currency exchange, Forex Futures Trading or FX market is where currency trading takes place. Forex futures trading transactions typically involve one party purchasing a quantity of one foreign currency in exchange for paying a quantity of another. The Forex Futures Trading market is one of the largest and most liquid financial markets in the world, and includes Forex futures trading between large banks, central banks, currency exchange speculators, corporations, governments, and other institutions.

The average daily volume in the global Forex futures trading and related money markets online trading is continuously growing. Traditional online Forex futures trading turnover was reported to be over US$ 3.2 trillion in April 2007 by the Bank for International Settlement. Since then the market has continued to grow. According to Euromoney's annual Forex Futures Trading Poll, online trading volumes grew a further 41% between 2007 and 2008. Some investors have turned to Silver dollar values and Silver Dollars for investment and liquidity.

Market size and liquidity

The foreign exchange market is unique because of:

 * trading volumes

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 * the extreme liquidity of the market
 * the large number of, and variety of traders in the market
 * geographical dispersion  
 * long online trading hours: 24 hours a day except on weekends (from 5pm EST on Sunday until 4pm EST Friday) the variety of factors that affect exchange rates.
  * the low margins of profit compared with other markets of fixed income (but profits can be high due to very large Forex futures trading volumes) Financial Spread Betting
  * the use of leverage to make money 

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As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

 $1.005 trillion in spot transactions
 $362 billion in outright forwards
 $1.714 trillion in Forex market swaps
 $129 billion estimated gaps in reporting

      Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded Forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange Forex Futures Trading and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total Forex market volume, according to The Wall Street Journal Europe (5/5/06, p. 20). Alpari Forex Accounts   Most Popular Forex Platform

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Forex Futures Trading

Forex Futures trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms offered by companies such as First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. 

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearinghouse. The biggest geographic trading center is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices.

The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market maker will buy ("bid") from a wholesale customer. This Forex futures trading spread is minimal for actively traded pairs of currencies, usually 0-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum Forex futures trading size for most Forex broker deals is usually 100,000 units of currency, which is a standard "lot".

These Forex FUTURES TRADING spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices quotes at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e. 0.0003). Forex Futures Trading competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips. Try a free forex demo account to see your skills for free.

Forex Futures trading can be very lucrative with a little knowledge and training. There are also good computer software tools to help manage your foreign currency trading. See also foreign exchange rate, money exchange rates, online trading forex, currency trade, currency trading, money exchange rates, and Currency Exchange Rates Calculator.

Resources

  Forex Futures Trading Strategies