Currency Futures Information in Australia

A currency future is a type of futures market contact that acts as a promise to exchange a fixed amount of currency on a fixed future date at fixed exchange rate. The purchase is essentially a gamble against the current exchange rate and the difference in the interest rates of each currency. Although U.S. dollars are commonly used as one of the currencies in most exchanges, many Australians prefer to use Australian dollars in exchange for Euros, British pounds, Japanese yen, or Canadian dollars. Australian dollar/U.S. dollar currency futures are also very popular. The price of a currency future is set in terms of a primary currency per unit of a secondary currency. One benefit of currency futures contracts is that the purchaser has the option of closing them out at any time prior to the final delivery date. Other names used for currency futures are FX futures and foreign exchange futures. Tools used for currency futures are the currency converter. Unlike foreign exchange transactions, currency futures use one of a number of single standardized markets.

Markets

Currency futures are traded on a closed market system. The first market was the International Commercial Exchange in New York, but in 1972, the Chicago Mercantile Exchange (CME) began offering currency future contracts. CME began offering Australian dollar futures in 1987. CME is currently the world leader in currency futures. Other popular markets offering currency futures include the International Monetary Market (IMM), a division of CME; Euronext.liffe; Tokyo Financial Exchange; GLOBEX; PBOT; and NFX. All futures markets combined are only about one one-hundredth the size of the foreign exchange market (FOREX, FX).

Settlement

Most currency future contracts are settled before the maturity date. Investors have the option of settling on a daily settlement price presented by the market at the end of each trading day. The profit or loss from the settlement is then posted to the investor’s account. It is rare for an investor to hold on to a currency future contract until the final settlement date. One reason for this is because most markets use a physical delivery process that takes some effort from both parties to complete and is only done on four days out of the year. This is complicated by the fact that the contract is not made directly between the client and the market. A clearinghouse is used as a third party to prevent each side from not being able to meet the demands of the contract. In a final settlement, investors must arrange for their bank to fund or receive money through the delivery account and then to the other party’s bank.

Oversight

Currency futures brokers and currency futures markets must follow strict regulations by all government agencies in the countries where they operate. In addition, each market has its own regulating department charged with upholding the integrity of the market and keeping a fair and balanced system.