The foreign exchange market, commonly referred to as the ‘Forex’ or ‘FX’ market, is more or less an interbank system that corporations and investors can trade currencies. Forex trading that occurs in real time is known as the ‘spot’ market and transactions in this market are normally settled within 2 working days. Global futures Forex are exchange traded contracts to sell or buy a specific currency at a given future date for a pre-determined price set by the market. Unlike the short term Forex ‘spot’ transactions contracts executed through the inter-bank system, global futures Forex are long term contracts.
Still on point, unlike Forex ‘spot’ transactions where the contract sizes will vary hugely in terms of the amount, global futures Forex are traded in contracts of standardized amounts with predetermined dates of maturity. Basically, the standard length of time it takes global futures Forex to mature is 3 months. Futures contracts of such kind always involve the trading of two currencies.
There are two types of entities, or rather, two major players in the Global futures Forex market, and which are most likely to engage in the trading of currency futures -- hedgers and speculators. Hedgers are mostly corporations looking to reduce the company’s foreign exchange risks. Hedgers are especially common amongst companies that do commerce and businesses overseas where changes in the foreign exchange rates can greatly affect the profitability of a company’s ventures.
The other major player -- speculators take a rather short term perspective of the market. The main goal of speculators is to purchase and sell currencies which are relative to each other in the hopes of making a profit from the fluctuating differentials that occur between the currencies on a day to day basis. The values of global futures Forex contracts will rise and fall on a daily basis with the Forex exchange rates on which they are based. Typically, speculators will buy and sell global futures Forex contracts on a number of currencies and knowingly take the risk in order to gain a profit in the exchange.
Both speculators and hedgers will employ global futures Forex contracts in the marketplace. However, both these entities because of their contradicting motivations have a different perspective on the Forex market. While the hedgers will utilize Global Futures Forex as a defensive mechanism for purposes of risk protection, speculators will purposely assume the risk to make a profit by forecasting the trends and movements of the Forex currencies relative to each other.