Currency Futures: Trading and Profiting
For those who are seeking to raise their profits in a well-balanced investment portfolio, currency futures trading is a very profitable business, notwithstanding its inherent risks.
But first, it is necessary to know what is currency futures trading.
First of all, every investor must remember that futures market is different from a foreign exchange market, though currency futures market and foreign exchange market both deal with currencies.
The foreign exchange market is different from currency futures market in two ways. First, it is a worldwide market, with financial centers located across the globe. Second, instead of futures being traded, actual currency is traded.
The foreign exchange market also has something called the spot market. This market has a large volume of transactions. Trades in the spot market are settled almost immediately, and most transactions are completely settled in as little as 48 hours.
Then there is hedge trading, another important part of the foreign exchange market. Also known as hedging, this is similar to regular hedging in the stock market and is usually done by traders to protect their investment as much as possible.
So what is currency futures market? Currency futures market is that market where the commodity traded is the currency exchange rate such as the Euro to US Dollar exchange rate, or the British Pound to US Dollar exchange rate. The currency futures trading launched at the National Stock Exchange (NSE) in India on Friday, allows a person, a bank or an institution to buy or sell Indian Rupee against the US Dollar on a specified future date, and at a price specified in the contract.
There are many benefits associated with currency futures trading.
Currency futures trading is useful as it brings greater liquidity into the market, giving companies greater flexibility in hedging their underlying currency exposure.
They also ensure that deals are put through at the best possible price for all participants. Profits or losses in the futures market are collected/paid on a daily basis and hence, the scope for mark-to-market (MTM) losses being built up in the books of various participants is limited.
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