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Currency Futures Trading Creates Fantastic Profits

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Many Facets of Currency Futures Trading

currency futures trading

As the title implies, currency futures trading is tantamount to wagering on a currency’s relative value at a subsequent time. Futures’ investing is a common practice within agricultural, precious metals, and monetary exchange markets. Like casino craps players, futures speculators may bet on either side of the “pass” line. Ultimate wager outcomes depend upon accurate guesswork.

Currency Futures Trading Fundamentals

“Currency” is a blanket term that denotes a nation’s official monetary exchange medium. For instance, American, Australian, and Canadian currencies are denominated as “dollars.” “Yen” indicates Japanese money while the “Peso” is Mexico’s official medium of exchange, etc.  Currently, almost as many currencies exist as there are countries.

The value of a nation’s currency in relation to that of others constantly fluctuates. Prevailing political, social, and economic conditions within a country is the main determinant of the current——and probable future value of its currency.

Currency futures trades are legally binding contracts to buy a specific quantity of a specific currency for a fixed price on a future date. Like other futures investments, risk management is the primary motive for currency futures trading.

Anatomy of a Currency Futures Trade

Suppose John Investor decides to execute a futures contract for 1,000 French Francs for $10,000 US Dollars one year from today. The price differential between the two monetary media is 10 to 1. This ratio is their “exchange rate.” In other words, the future exchange rate is 10 US Dollars per one French Franc.

The current exchange rate is only 8 to1, however. Thus, upon trade execution, John immediately acquires legal ownership of the French currency for only $8,000 USD.

If his projections prove accurate and the French Franc’s value indeed rises relative to that of US Dollars, John’s gross profit is $2,000 USD.

Currency futures trading contracts are just as negotiable as the notes or coins that underlie them. Thus, odds are that a seasoned speculator like John will jettison his contract long before a full year expires. This is precisely what occurs. Two weeks later, John sells his position to another like-minded currency futures trading investor for just $9,000 USD——thereby pocketing the tidy sum of $1,000 USD.

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