Currency Futures Options: Closing Snapshot - Markets Data Center -

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A currency futurealso known as an FX future or a foreign exchange futureis 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; see Foreign exchange derivative.

Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency.

This can be different from the standard way of quoting in the spot foreign exchange markets. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date. But the contracts did not "take off" because the Bretton Woods system was still in effect.

They did so a full two years before the Chicago Mercantile Exchange CME inless than one year after the system of fixed exchange rates was abandoned along with the gold standard. Some commodity traders at the CME did not have access to the inter-bank exchange markets in the early s, when they believed that significant changes were about to take place in the currency market.

The CME actually now gives credit to the International Commercial Exchange not to be confused with ICE for creating the currency contract, and state that they came up with the idea independently of the International Commercial Exchange. Currently most of these are traded electronically. Other futures exchanges that trade currency futures are Euronext. The conventional option maturity dates are the first Friday after the first Wednesday for the given month.

Investors use these futures contracts to hedge against foreign exchange risk. If an investor will receive a cashflow denominated in a foreign currency on some future date, that investor can lock in the current exchange rate by entering into an offsetting currency futures position that expires on the date of the cashflow. Currency futures can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates.

As with any future, this is paid to him immediately. From Wikipedia, the free encyclopedia. This section needs expansion. You can help by adding to it. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Retrieved from " https: Foreign exchange market Derivatives finance. Articles to be expanded from December All articles to be expanded Articles using small message boxes.

Views Read Edit View history. This page was last edited on 19 Decemberat By using this site, you agree to the Terms of Use and Privacy Policy. Currency band Exchange rate Exchange-rate regime Exchange-rate flexibility Dollarization Fixed exchange rate Floating exchange rate Linked exchange rate Managed float regime Dual exchange rate. Foreign exchange market Futures exchange Retail foreign exchange trading.

Currency Currency future Currency forward Non-deliverable forward Foreign exchange swap Currency swap Foreign exchange option. Bureau de change Hard currency Currency pair Foreign exchange fraud Currency intervention.

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A Currency Options CO Contract is an agreement that gives investors the right, but not the obligation, to buy or sell a Currency Futures Contract on a future date at a fixed price. COs give investors the right to buy the underlying Currency Future. Put Options give them the right to sell it. Investors are required to pay a premium for choice of exercising the Option or not. The premium is calculated based on the volatility of the underlying exchange rate.

Investors, importers, exporters and travellers can use COs to hedge themselves against movements in the exchange rate. Speculators use COs to make a profit on short-term movements in prices. Arbitrageurs use them to profit from the price differentials of similar products in different markets.

Some investors also use COs to enhance the overall performance of a portfolio over the long term. Register as a client with an authorised JSE Currency Derivatives member , deposit the required initial margin and sell or buy according to your needs. Turn on more accessible mode. Turn off more accessible mode. Currency Options A Currency Options CO Contract is an agreement that gives investors the right, but not the obligation, to buy or sell a Currency Futures Contract on a future date at a fixed price.

Who is this for? Features Limit losses to the premium paid as investors are not obliged to buy or sell the CO underlying the Option on expiry. Provide protection against exchange rate fluctuations in investment portfolios.

Allow the holder to fix prices for import and export purposes. Allow investors to take advantage of price movements in the exchange rate because they can take a view as to whether the exchange rate will strengthen or weaken. Standardised contracts traded on a regulated exchange eliminate counterparty risk.

Investors may lose the premium paid if they choose not to exercise the Option. This means that investors may be required to make additional payments on a daily basis should their initial margin payment become insufficient because of movements in the underlying currency.

How to get it Register as a client with an authorised JSE Currency Derivatives member , deposit the required initial margin and sell or buy according to your needs. Qualifying factors No limits apply to individuals, foreigners or corporate entities. South African pension funds, collective investment schemes, financial services providers and insurers are subject to their foreign portfolio allowances. For all the details relating to qualifying factors, speak to your broker.

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