Preparing for Foreign Exchange Futures

Getting Started In Foreign Exchange Futures

By Justin KuepperAAA | 

We are going to look at futures trading currencies. We will follow 

information from Investopedia, an Internet site devoted to investing 

education based in Edmonton in Alberta, Canada.

The spot foreign exchange (forex or FX) market is the world's largest 

market, with over US$1 trillion traded per day. One derivative of this 

market is the forex futures market, which is only one one-hundredth the 

size. This article examines the key differences between forex futures and 

traditional futures and looks at some strategies for  speculating and 

hedging with this useful derivative.

SEE: Forex Tutorial

Forex Futures Vs. Traditional Futures 

Both forex and traditional futures operate in the same basic manner: 

a contract is purchased to buy or sell a specific amount of an asset 

at a particular price on a predetermined date. There is, however, one 

key difference between the two: forex futures are not traded on a centralized 

exchange; rather, the deal flow is available through several different 

exchanges in the United States and abroad. The vast majority of forex futures 

are traded through the Chicago Mercantile Exchange (CME) and its 

partners (introducing brokers).

However, this is not to say that forex futures contracts are 

over-the-counter per se; the futures are still bound to a designated 

'size per contract' and are offered only in whole numbers (unlike forward contracts). 

It is important to remember that all currency futures quotes are made against the 

U.S. dollar, unlike the spot forex market.

SEE: Futures Fundamentals
Here is an example of what a forex futures quote looks like:

Euro FX Futures on the CME For any given futures contract, your broker should provide you with its specifications, 

such as the contract sizes, time increments, trading hours, pricing limits and other 

relevant information. Here is an example of what a specification sheet might look like:

Figure 2: Specification Sheet from CME.

Hedging Vs. Speculating 

Hedging and speculating are the two primary ways in which forex derivatives are 

used. Hedgers use forex futures to reduce or eliminate risk by insulating themselves 

against any future price movements. Speculators, on the other hand, want to incur 

risk in order to make a profit. Now, let's take a more in-depth look at these two 

strategies.

Hedging 

There are many reasons to use a hedging strategy in the forex futures market. One 

main purpose is to neutralize the effect of currency fluctuations on sales revenue. 

For example, if a business operating overseas wanted to know exactly how much 

revenue it will obtain (in U.S. dollars) from its European stores, it could purchase a 

futures contract in the amount of its projected net sales to eliminate currency 

fluctuations.

SEE: Spotting A Forex Scam

When hedging, traders must often choose between futures and another derivative 

known as a forward. There are several differences between these two instruments, 

the most notable of which are these: 

• Forwards allow the trader more flexibility in choosing contract sizes and setting dates. 

This allows you to tailor the contracts to your needs instead of using a set contract 

size (futures).

• The cash that's backing a forward is not due until the expiration of the contract, 

whereas the cash behind futures is calculated daily, and the buyer and seller are 

held liable for daily cash settlements. By using futures, you have the ability to 

re-evaluate your position as often as you like. With forwards, you must wait until the 

contract expires.

SEE: Forex Walkthrough

Speculating 

Speculating is by nature profit-driven. In the forex market, futures and spot forex 

are not all that different. So why exactly would you want to participate in the futures 

market instead of the spot market? Well, there are several arguments for and 

against trading in the futures market:

Advantages 

• Lower spreads (two to three).
• Lower transaction costs (as low as $5 per contract).
• More leverage (often $500+ per contract).

Disadvantages 

• Often requires a higher amount of capital ($100,000 lots).
• Limited to the exchange's session times.
• National Futures Association fees may apply.

The strategies employed for speculating are similar to those used in spot markets. 

The most widely used strategies are based on common forms of technical chart 

analysis since these markets tend to trend well. These include Fibonacci studies, 

Gannstudies, pivot points and other similar techniques. Alternately, some speculators 

use more advanced strategies, such as arbitrage.

The Bottom Line

As we can see, forex futures operate similarly to traditional stock and commodity 

futures. There are many advantages to using forex futures for hedging as well as 

speculating. The distinguishing feature is that the futures are not traded on a 

centralized exchange. Forex futures can be used to hedge against currency 

fluctuations, but some traders use these instruments in pursuit of profit, just as 

they would use futures on the spot market.

SEE: 10 Forex Misconceptions

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Trading Commodities to make some fast money!

Darnell L Williams

I wake up at 4:00 AM EST to check the prices of commodities especially the price of oil. I make a living off of oil. I use the many products from oil, from fueling my car and lubricating it to using all the different plastics made from oil.  So oil is a big part of my life and I suspect it is a big part of your life as well.  

Oil is a commodity that is traded on a Commodity market like other commodities such as Gold and Silver. Corn and Black Eyed Peas are commodities.  Bacon and chicken are commodities.  

We are going to find out what are commodities and how are they traded?   

 Click on the link below or on the picture.

https://www.youtube.com/watch?v=nGZn_pGT_PM

 What is a Commodity?

The InvestorGuide Staff Writers and Editors explain commodities this way!

A commodity is a product, which is of uniform quality and traded across various markets. There are generally two types of commodities, 'hard commodities' and 'soft commodities'. Hard commodities include crude oil, iron ore, gold, and silver and have a long shelf life. Agricultural products such as soybean, rice or wheat, are considered 'soft commodities' since they have a limited shelf life. These commodities have to be similar and interchangeable or 'fungible'. For example, soybean from one country or market should be of the same quality wise as soybean from another, or gold in one country should be of the same purity as gold from another.

Consumer products like televisions or computers vary from manufacturer to manufacturer and hence cannot be traded as commodities. But now, electricity, bonds, and currencies are also traded as commodities across the globe.

These commodities are traded across markets situated in different corners of the world through commodity exchanges such as the New York Mercantile Exchange, the Chicago Board of Trade, the London Metal Exchange, etc. These exchanges consist of traders who are classified as hedgers or speculators. Hedgers are actual manufacturers or farmers who want to sell their commodities at a guaranteed price, so that they are insulated against any price fall or fluctuations in the market.

Speculators are traders who enter into the market solely to make a large profit. If the speculator has information that natural disasters are destroying wheat in a particular country, he will try and purchase wheat as soon as possible, since he would expect the price of wheat to rise in the coming days. Speculating requires a keen business sense and an in-depth understanding of the market or the losses incurred could be significant.

Traders do their trading in any of the above commodity exchanges in the following ways. Spot Trading occurs when the deals are done on the spot regarding price or delivery, or if the delivery takes place in a minimum amount of time after the trade is finalized. Trading is also done by way of 'Futures Contracts' where the price of the commodity is decided immediately, but the delivery is made after a certain period of time. 'Futures Contracts' benefit either the buyer or seller since the price, which is agreed upon could change marginally or drastically by the time the delivery is actually made. These contracts can give buyers and sellers a way to 'foresee' the market in the future, since the rates have already been set. These markets are quite open and transparent, but to prevent fraud and misuse, the government has set up 'The Commodity Futures Trading Commission' or the CFTC, which keeps a close watch on the trading market.

The delivery date and the method of payment must be agreed upon before the contract is executed. Since commodities are physically and actually present, the chances of bankruptcy are nil, but profit and losses on a large scale are possible because of the sheer volume involved in trading. You too can directly invest in the Commodities market, but if you do not have experience, then it is better to go through a commodities broker. His vast knowledge and contacts will help you save time and money.

The commodities market is based on the simple principle of supply and demand. Since there is a lot of demand from emerging economies such as India and China, some commodities such as crude oil and steel are in very high demand. Hence trading in these items is also very high.

Commodities are in short, similar items grown or produced in different countries and traded in different markets around the world.

Warning;

I worked at Westinghouse Electric at the Telecomputer Center when in my early 20s. I met a man that took $3,000 and traded commodities for 6 months and made $33,000. He was hooked. The next year, he lost $33,000 plus his family savings, a home equity loan, and he borrowed money from his family. I don't have to tell you that his marriage was on the rocks!  

Let's see what you learned.

1. A commodity is a product, which is of uniform quality and traded across various markets. (True or False)

2. 'hard commodities' and 'soft commodities' as well as people are the three major Commodity Types traded. (True or False)

3. Hard commodities have a long shelf life. (true or False)

4. . Agricultural products have a long shelf life. (true or False)

5. Consumer products like televisions or computers vary from manufacturer to manufacturer and is traded as Hard Commodities.

6. Electricity, bonds, and currencies are traded as commodities around the world.

7. __________ are traders who enter into the market solely to make a large profit.

8.  ______ Trading occurs when the deals are done on the spot regarding price or delivery, or if the delivery takes place in a minimum amount of time after the trade is finalized.

9. Trading is also done by way of ________________ where the price of the commodity is decided immediately, but the delivery is made after a certain period of time.

10. The commodities market is based on the simple principle of _________________.

The Answers

1. True

2. False

3. True

4. True

5.  False

6.  True

7.  Speculators

8. Spot

9. 'Futures Contracts'

10. supply and demand

 Results

If you got 10 or 9 right, you are ready for the next step, seeing a Commodities Broker.

If you got 8 or 7 right, read up on the subject and see a Commodities Broker.

If you got 6 right, I don't think that is for you.

Why You Got Surprise by the Great Financial Crisis

Greece

Why did most of you get caught not knowing that Greece and Puerto Rico was in the middle of a financial crisis that will come down on you like a ton of bricks? Was it because a group of people from the banks to the Pension fund managers did not want you to see it coming?

 Well they did a good job of keeping you in the dark. I watch the World's Financial Markets from 8:00 PM to 6:00 PM every day, looking for stuff like this. I saw and tried to warn people for 3 years about Greece. But even me was caught off guard by the Puerto Rican crisis.  That is how secret this crisis was kept.   

Puerto Rico



Bate and Switch

Politicians do two things: they have their friends put out propaganda on personal media about how good things are going. Second, they monopolize the media, telling people other things to take up media time.

 

For example; the nightly news is 30 minutes long.  For 10 minutes, they have commercials and introductions. They have to pay the bills and they have to introduce the show.   

 

They spend 10 minutes talking about the major story going on at that minute such as, a politician caught sexing, a white man shooting up a Black Church, or Russia invading a country that they occupied at one time.  I am not saying that these stories are not important. I am saying that that someone decided to use all this time for these stories.

 

The last 10 minutes of the show is used to show some type of human interest stories such as a bear trying to get into a car. A cat standing up to a bear. One story I saw last week, a private rocket heading for the space station blew up and the Astronauts are not going to get their "Fruit Loops" this week.

 

But if you notice, the media cannot find time to tell you about a story that eventually affects your financial stability. You have to ask why?  

 

Click on the link below.

 http://www.msn.com/en-us/money/markets/puerto-rico-governor-calls-debt-unpayable-as-deadlines-loom/ar-AAcgJsB?ocid=ansbloom11

 

Puerto Rico Governor Calls Debt

Unpayable as Deadlines Loom

You May Ask How does it Affect Me?

 You may have retired already or you are planning to retire in the near future. The money that you are getting is guaranteed by the Pension Plan but the amount that you are getting may not be guaranteed by the Federal Government.   Your guarantee comes from the Pensions Investment Portfolio not the US Treasury.

One of the municipal funds your money may be invest into the Oppenheimer Funds directly or indirectly. One of the largest investments  in the fund is Puerto Rican Obligation Bonds.  Click on the link below to read about the fund.

https://www.oppenheimerfunds.com/investors/

Puerto Rico Gov. Alejandro Garcia Padilla surprised everyone coming out this week, saying that Puerto Rico cannot pay on its obligations.  Mutual Funds own these obligations.  If they do not pay the funds, investors will sell the funds.  The fund prices will fall, making these funds cheaper and the owners will lose its value. Who are the owners? The Pensioners like you. When it comes to getting your pension money, you will get less than what was promised or none at all.   

 

In my opinion, the world investment community knew about Greece for over 3 years but most just found out about Puerto Rico in the past few days.  The Millionaire's Confidence Index has gone from 16 to 6 recently.  The rich are not putting new money into the Stock Market or the bond market.  Many are not investing at all.  That is how bad the world economy is around the world.

 

As I keep telling people, we are not in a recession, this is the " First Great Depression of the 21st Century."

The Real Reason for Falling Oil and Gas Prices

OPIC was created to put a floor on oil prices. Now if that is the case, why don't OPIC cut oil production? This will cut supply of oil in the world and stabilize prices. From this, you can see that the Saudi Arabian Government, the major country in OPIC can care less about stopping falling oil prices.

 

I hear people say that we are getting a tax cut for Christmas. No, prices are falling because the world is awash with oil. The flip side of that is the higher cost oil production in the US will have to shut down US oil wells. Fewer well permits are already happening.  This means unemployment for oil workers and oil supply workers.

 

What many people in America do not know is that the United States has more enemies around the world than what Americans realize. Saudi Arabia wants the US to shut down new oil wells. Iran and Russia is trying to get away from pricing oil in dollars.  When this video below was made on November 26, 2014, oil prices were in the $70 range. December 10, 2014, oil prices closed at $63.82 and the stock market lost 268.08 points.

 

The markets are starting to sense that more is going on than just falling oil prices. 

 

Darnell L Williams

This is all because the bankers and politicians are trying to cover their own asses.

Look at this video below by clicking on the picture. If that does not work, click on the https link below.

 

https://www.youtube.com/watch?v=PRrwmrZ0sAQ

 

The Real Reason for Falling Oil and Gas Prices  

 

Christopher Greene of AMTV explains the real reason for falling oil and gas prices.  

Here is why I am buying oil stocks. You buy oil stocks when no one wants them. When supply falls because of the oil war, prices will rise and take oil company stock prices with it. You the speculator or investor make out like a bandit!

 

Borrowing Money Against Your Investments

I woke up this morning and turn on TV. I found out on CNBC,  a cable financial channel that the Dow Jones Averages was down 250 points. That got me up real quick. I had to find out what was going on.

 

It did not take long for me to find out that China decided to deny investors the right to place Corporate Bonds with a Standard and Poor's credit rating of BBB and below as collateral for borrowing money.  That meant that many tens of millions of dollars in loans came due immediately.  In the business, we call that a "margin call." ( Do not get that mixed up with a booty call!)

 

DEFINITION of 'Margin Call'

 

A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when your account value decreases to a value calculated by the broker, exchange, or government's  particular formula.

 

This is sometimes called a "fed call" or "maintenance call."

 

You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.

 

DEFINITION of 'Margin Account'

 

A brokerage account in which the broker lends the customer cash to purchase securities, cash, goods, or services. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the securities.

 

In a margin account, you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses.

 

Here is the Problem!

 

The price of oil is going down. Some of these companies and countries floated junk bonds like Venezuela's oil financing bonds.  Due to falling oil prices, China does not want to be caught with worthless bonds, collateralizing portfolios.

 

Venezuela’s state-controlled oil company will sell dollar bonds for the first time in six months as the government seeks foreign currency to end shortages of imported goods.  If these bonds default it would be like receiving goods from the store and not paying for them because your credit card is no good.

This action against such bonds especially bonds to finance oil operations around the world caused tens of millions of dollars to come due. People and governments had to sell off portfolios to bring in enough cash to satisfy the margin call.  The reaction, stock and bond prices around the world went down quickly.

 

Don't Snicker

Many people bought cars and homes with this borrowed margin money. Governments financed activities for the people like water and sewer projects. Yet corporation financed everyday activities in the business like stop gap payroll and benefits such as healthcare for employees.  For many, this was the start of layoffs in some businesses.