DEFINITION of ‘Forex Futures’
The price of the futures contract is based off the underlying asset: the forex rate.
BREAKING DOWN ‘Forex Futures’
The different between forex and forex futures is that with forex trading the two parties exchange the different agreed currencies, whereas forex futures are a derivative contract that expires on a set date (March, June, Sept, Dec), and are cash settled on expiry.
Forex futures are traded for a number of reasons. Firstly, because of the various size of the contracts they are a good tool for early investors who want to trade smaller positions, and conversely, because they are liquid, large scale investors will use them to take on significant positions.
Forex futures can also be hedging strategies for companies who have upcoming payments in foreign exchange. For example if a U.S. company has agreed to buy an asset from a European company with payment at a future date they may buy some euro forex futures to hedge themselves from an unwanted move in the underlying asset: the EUR/USD cross rate.