Currency futures are the futures contracts dealing in currencies as an underlying asset in the stock market.

Currency futures are the futures contracts dealing in currencies as an underlying asset in the stock market. Now let us understand basics of Currency Market and who can participate in Currency Futures Market. Currency Futures are the future contracts dealing in currencies as an underlying asset for example USD/INR or EUR/INR.

Currency Futures are used as an hedging instruments, wherein a person enters into a contract to exchange the foreign currency at a predetermined date in future. Apart from the price the lot size and the delivery time is pre determined in this case. This is usually done to protect market against the volatility in the currency exchange rate. A trader can trade in the currency futures through the trading account itself.

To enter into the currency futures contract one needs to pay an initial margin, once the maintenance margin is triggered the trader needs to bring back the amount equivalent to the initial margin. Currency Futures are cash settled, settled daily and are marked to market. There would be no physical delivery of the currency in any case.

The prices of currency futures are affected by macroeconomics factors such as changes in govt policy, rate of inflation, interest rates etc. Talking about the market participation due to high liquidity and volume of trades in the currency market a huge participation is seen from the investors, banks, financial institution, traders etc. Businesses that deal in import and exports of goods and services are exposed to the global market and face a risk of volatile foreign exchange rates.

Here hedging currency risk can be a excellent tool for businesses exposed to foreign exchange to ensure that the profits are not depleted due to fluctuation in the currency exchange rates. Apart from businesses arbitrages or speculators who predicts a rise or fall in prices based on their research and experience earned from the fluctuations in the currency market.

Foreign Exchange markets comes with lots of opportunities along with a risk of exposure to the global economy. It is important for everyone who is willing to enter the market to be well learned in terms of a global economy and the macroeconomics factors that make impact on the currency rates.