Future Currency Trading – Pricing Matters

The future currency trading is a type of transaction between two traders of the foreign exchange market to purchase and sell a specific quantity / amount of currency on a specific date in the future and at a stipulate price rate that has been agreed upon in the present. This type of trading is more like keeping something in advance, it looks like booking for a flight in the future, but in this case the money has not changed hands but the goods have been booked and the price can not change since it has already been pre determined. This type of trading originated in Chicago in 1972 at the Mercantile Exchange of Chicago, and since then it has become very popular till date, but it is no longer physical, since all foreign exchange trading is carried out through the internet.

The pricing of the future currency trading market is calculated with a distinct format, which is mainly based upon the rates of the interest and spots. The future price is determined by calculating the interest rate of the term currency with the interest rate of the base currency in relation with the day count convention all multiplied with the spot price, putting all this together determined the future price for trading. It should be noted that the Euro is the determined base currency used in the calculation. For instance, if you will have some amount of money available to you in the future and the cash is not at hand now, you can sell contracts worth that amount in the future market to expire on the day you will receive the money. In other words, if by the month of April you will get five hundred thousand pounds, you can sell currency worth this amount at the current market interest rate, that way, you will lock in the interest rate to stop is from increasing in the future . When this rate increase in the future when the money is expected you will profit instead of losing.

In summary the future currency trading system helps you to make use of the present interest rate to guard against futuristic increases of the market interest rate. It requires the ability to forecast and understand the prices and changes in the interest rate.

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