Foreign currency futures contract

Foreign currency futures contract is an alternative to a forward contract.

A currency futures, also FX futures or foreign exchange futures, 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.

The vast majority of futures contracts do not lead to delivery. The reason is that most traders choose to close out their positions prior to the delivery period specified in the contract. Closing out a position means entering into the opposite type of the trade from the original one.

Introduction: Types of Traders

Hedgers use futures to reduce the risk that they face from potential future movements in a market variable. Speculators use them to bet on the future direction of a market variable. Arbitrageurs take offsetting positions in two or more instruments to lock in a profit.

Exchange Traded & OTC Markets

A futures exchange or derivatives exchange is a central financial exchange where people can trade standardized futures contracts.

OTC market is not a centralized system for order matching and execution. It’s basically a network of telephones and computers. The main participants in OTC markets are dealers and brokerage firms.