Currency futures are specific types of forward outright deals whichoccupy in general a small part of the Forex market (See Figure 3.1).Because they are derived from the spot price, they are derivativeinstruments. They are specific with regard to the expiration date andthe size of the trade amount. Whereas, generally, forward outrightdeals—those that mature past the spot delivery date—will mature onany valid date in the two countries whose currencies are beingtraded, standardized amounts of foreign currency futures matureonly on the third Wednesday of March, June, September, andDecember.There is a row of characteristics of currency futures, which makethem attractive. It is open to all market participants, individualsincluded. This is different from the spot market, which is virtuallyclosed to individuals - except high net-worth individuals—because ofthe size of the currency amounts traded. It is a central market, justas efficient as the cash market, and whereas the cash market is avery decentralized market, futures trading takes place under oneroof. It eliminates the credit risk because the Chicago MercantileExchange Clearinghouse acts as the buyer for every seller, andvice versa. In turn, the Clearinghouse minimizes its own exposure byrequiring traders who maintain a non-profitable position to postmargins equal in size to their losses.Moreover, currency futures provide several benefits for tradersbecause futures are special types of forward outright contracts,corporations can use them for hedging purposes. Although thefutures and spot markets trade closely together, certain divergencesbetween the two occur, generating arbitraging opportunities. Gaps,volume, and open interest are significant technical analysis toolssolely available in the futures market. Yet their significance extrapolates to the spot market as well.Because of these benefits, currency futures trading volume hassteadily attracted a large variety of players.For traders outside the exchange, the prices are available from onlinemonitors. The most popular pages are found on Bridge, Telerate,Reuters, and Bloomberg. Telerate presents the currency futures on28composite pages, while Reuters and Bloomberg display currencyfutures on individual pages shows the convergence between thefutures and spot prices.
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