CurrencyDay Trading

CurrencyDay Trading:  Futures currencyDay trading is similar to Forex Trading but different in a number of ways. Each has their own advantages and disadvantages. These will be explained later.  It is also worth reading the pages on Futures Trading and Forex Trading as a background to this lesson

Futures are a financial derivative. The value of a futures contract is ‘derived’ from the value or cash price of an underlying asset. Originally the entire futures industry was related to the agricultural markets. Today futures markets exist for many commodities including currencies.

In legal terms, futures are a legally binding contract obligating the buyer to purchase an asset (or the seller to sell an asset) such as a physical commodity or a financial instrument at a specified price and date in the future. The term “futures contract” and “futures” essentially refer to the same thing. For example, anyone talking about buying or selling “oil futures” is referring to the oil futures contract.

Currency futures are mainly traded on the Chicago Mercantile Exchange (CME). Globex is the name of the CME’s electronic trading system which provides global access to the market nearly 24 hours a day.

Participants in the market include large financial institutions such as banks, mutual funds, asset managers, market makers, corporations, hedge funds, proprietary traders, retail traders, etc.  

Currency futures are a standard size. For example, the EUR/USD contract size is 125,000 Euros, the AUD/USD contract is 100,000 Australian Dollars. Currency futures are quoted to four decimal places; therefore the tick size (minimum price fluctuation) is 0.0001. In forex this is referred to as a pip. When the EUR/USD moves from 1.4400 to 1.4401 it is an increase of one tick. The tick value varies depending on the currency pair. The tick value for the EUR/USD is $12.50, while for the AUS/USD it is $10. It is also possible to trade E-mini futures which are half the size of a standard currencyDay trading contract and E-micro futures which are one tenth the size.

A futures contract has a specified delivery date. Typically these occur quarterly in March, June, September and December.  The most traded currencyDay trading contract is the current contract and it is possible to roll the position over to the next contract month. The date for physical delivery of the underlying asset is the second business day before the third Wednesday of the contract month. However, very few currency futures go to physical delivery. Like most futures contracts they are settled for cash before the delivery date.

Currency pairs on the futures market are usually quoted in US Dollars. The EUR/USD is one of the most popular currencyday trading contracts. Traders can profit from going long in the futures market in anticipation of a rise in value or going short, anticipating a fall in value.  Traders expecting the euro to appreciate against the dollar will buy the EUR/USD currency future. Traders expecting the euro to depreciate against the dollar will sell that contract.

Each currencyday trading contract has its own specifications which are easy to find out through a broker or on the internet. Examples of contract specifications are given for a stock index at (Futures Trading) and for an agricultural commodity at (Commodities Trading). Below are the contract specifications for the EUR/USD currency.


Ticker Symbol: EUR/USD (The ticker symbol is used by the exchange to identify the contract)

Contract Size: 125,000 Euro

Tick Size: 0.0001 ($12.50 per tick). This is the minimum price fluctuation possible.

Trading Hours:  CME Globex Electronic Trading Platform - Sundays: 5:00 p.m. – 4:00 p.m. Central Time (CT) next day. Monday – Friday: 5:00 p.m. – 4:00 p.m. CT the next day, except on Friday - closes at 4:00 p.m. and reopens Sunday at 5:00 p.m. CT.

Also trades on Clearport and Open Outcry.

Contract Months: March (H), June (M), September (U), December (Z).

Last Trade Date/Time: 9:16 a.m. Central Time (CT) on the second business day immediately preceding the third Wednesday of the contract month (usually Monday).


Traders should know the contract specifications for the market they are going to trade. Other specifications apply such as margin requirements.

A trader who buys one EUR/USD futures contract at $1.4400 and sells it at $1.4500 would make $1250 (100 ticks x $12.50) not including commission.  If the market declined and the contract was sold it at $1.4350 the loss would be $625 (50 ticks x $12.50). A trader could also go short and sell one contract at $1.4400. Buying it back at $1.4200 would yield a profit of $2500 (200 ticks x $12.50).

Futures offer high leverage, high liquidity, low transaction costs, the ability to go long or short and portfolio diversification. However, futures can be very volatile and the high leverage requires effective risk management otherwise large losses can result. Many traders make use of Technical Analysis, Chart Patterns and Fundamental Analysis when trading futures.

Futures are not the only method of trading currencies. Forex, Exchange Traded Funds (ETFs), Contracts for Difference (CFDs) and Spread Betting are alternative methods of accessing currency markets.


Basis refers to the difference between the futures price and the price of the underlying asset on the cash market – the spot. Spot and futures prices are correlated and converge at expiry. Without wishing to sound flippant, it is possible to trade futures without knowing the mechanics of how they are priced. You can drive a car without knowing exactly how all the little parts under the bonnet work.  Someone could trade futures markets quite successfully using technical analysis indicators and chart patterns without ever knowing how basis is calculated.  Getting the direction of the market right is what is important.

With that in mind let us proceed.  Currency futures are quoted in pairs i.e. EUR/USD or AUD/USD. See the page on Forex Trading for a list of other currency pairs. The first currency is the base and the second currency is the term currency (quote or counter currency).

Currency futures prices relate to the spot rate (the underlying cash market) adjusted by short term interest rates of the base and term currencies. Futures don’t pay interest as they are not an asset as such. The price of the futures contract will account for the interest rate differential between the currencies.

The carry of an asset is the return obtained from holding it (if positive), or the cost of holding it (if negative).  In this case the underlying asset is currency. Let’s say the short term interest paid on the Euro was 2% and on the USD was 1%. It makes more sense to own a currency that pays a higher short term interest rate. If the short term interest rate on the Euro is greater than the USD it is referred to as positive carry. Positive carry is when the terms rate is less than the base rate. Futures prices are at lower levels in deferred contract months reflecting earnings accrued to carry base currency.

Negative carry is when the terms interest rate is greater than the base rate, for example, if the short term interest rate on the USD was 3% and the Euro was 2%. Futures prices will be at higher levels in deferred months reflecting costs incurred to carry base currency.



Traders are often confused over whether to trade currency futures or forex. There is no straight answer to this. In advertising, futures and forex brokers will obviously focus on the advantages of their own product. Each, however, have their own advantages and disadvantages.  

Forex is the spot or cash market. Currency Futures are a derivative of the cash market. While Forex does not have a centralised market place, the futures market is traded mainly on the Chicago Mercantile Exchange. Critics contend that the futures market and exchanges are regulated while the Forex market is more fragmented and does not come under the same scrutiny.  

Futures market prices are more transparent because the price is based on supply and demand and adjusts accordingly. Participants in the futures all see the same quoted price. In forex, however, the broker typically quotes a fixed spread. The spread in futures may or may not be tighter but the futures broker will make money by charging a commission to enter and exit a trade. Forex on the other hand is commission free. They make money through the spread - the difference between the bid (the lower price) and ask price (also known as the offer price). For example, even though the EUR/USD is trading at 1.4500, the ask (buying) price may be 1.4505 and the bid (selling) price may be 1.4495. This is a spread of 10 pips. Traders should calculate which method is more cost effective. Another consideration is that access to the forex market may be cheaper because futures brokers usually charge exchange or electronic platform fees.

Futures firms are required to keep their money in a segregated account so clients’ money should be safe even if the firm becomes insolvent. No such requirement exists in the Forex market therefore there is a higher counterparty risk with Forex.  The futures guarantees trade settlement but in FX it depends on the ability of the counterparty to pay. You may trade forex all your life and never encounter a problem with counterparty failure but it is a point worth noting.

Forex is the largest market in the world and hence the most liquid. Margin rates (the amount of money necessary to open a trade) are less in forex than in futures. Forex trades may only require 1% of the value of the transaction while futures currencyDay trading will require a larger deposit.

Forex is 24 hours trading while futures close for a brief period each day.

Future currencyDay trading contracts are quoted with the interest rates built in. With forex you actually get paid or charged interest on a daily basis.

Futures currencyDay trading contracts expire on a quarterly basis so the trader has to rollover to the next contract month if they wish to keep their position.  This is like exiting a trade and entering a new one so commissions will apply.  In forex the rollover is called a 2 day swap and is done automatically.

Traders can see the volume and open interest in the futures market which can give an indication of the strength of a price movement.

Go to Forex Trading for more information and to compare it with Futures CurrencyDay Trading .

Traders and investors may use Fundamental Analysis, Chart patterns and Technical analysis indicators to aid their decision making process in currency futures trading.

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