Foreign Exchange Futures

Foreign exchange (FX) futures, although not terribly significant as a fraction of FX trading volume, can be a source of market information in a world dominated by non transparent, over‐the‐counter transactions. In essence, this chapter emphasizes the difference between FX forwards and futures and the idiosyncrasies of the futures contracts, they are very similar in that they both afford opportunities to buy or sell currency at some point in the future at a previously agreed upon price. Differences involve where they trade, whether they are individually tailored versus standardized, the nature of the cash flow associated with these trading vehicles, and, empirically, the likelihood of delivery. Finally, the chapter mentions options on FX futures, typically traded side‐by‐side with the underlying futures contracts on CFTC‐regulated exchanges in the United States.