Currency futures vs. Spot FX: an overview

The foreign exchange (forex) market is a very large market with many different characteristics, advantages, and obstacles. Forex investors can trade currency futures (also known as currency futures or currency futures), as well as on the spot currency market foreign exchange market today. The difference between these two investment options is subtle but worth mentioning.





Currency Futures

A forward exchange contract is a legally binding contract that requires the parties involved to trade a specific amount of a currency pair at a predetermined price (the specified exchange rate) at some point in the future. Assuming the seller does not close the position prematurely, they can either own the currency at the time the futures contract is entered into or “risk” the currency becoming cheaper on the spot market prior to settlement day forex trading platform in India. One of the currencies is usually the US dollar. Currency futures contracts are primarily used by global companies looking to hedge against currency fluctuations.

The Spot FX

With Spot FX, the underlying currencies are physically traded after the settlement day. Delivery is generally made within 2 days after execution, as it generally takes 2 days to transfer funds between bank accounts.1 Each spot market typically involves the actual exchange of the underlying asset best brokers in India for forex.  This is the most common case in commodity markets. For example, when a person goes to a bank to change currency, that person is participating in the spot foreign exchange market. As the largest market in the world, the spot forex market runs approximately $ 1 billion in transactions every day.



Key Differences

Therefore, the main difference between currency futures and spot currencies is when the trading price is determined and when the physical exchange of the currency pair takes place. In the case of forwarding currency trading, the price is determined when the contract is entered into and the currency pair is traded on the delivery date, which is usually in the distant future. With Spot FX, the price is also determined at the point of the transaction, but the physical change of the currency pair is done directly at the point of the transaction or shortly after. However, it is important to note that most futures market participants are speculators who tend to close their positions before settlement day and therefore most contracts tend not to take until delivery day.