T2W Bot

Staff member
1,457 59
Being the trader/trainer in the Extended Learning Track (XLT) Futures and Forex classes, I get this question all the time. Due to the ongoing evolution of these two markets, the answer is not as simple as you may think. In this piece, I will discuss what these markets are, identify the advantages and disadvantages of each of these two markets, and discuss how we deal with these markets in the XLT.
To begin with, both of these markets are where global currency values (exchange rates) are determined. These are fantastic markets as they are always moving and the moves and trends are larger than you will find in any other set of markets. The "spot" market is the cash market which means the current value (exchange rate) of where the currency pair is trading at right now. The "futures" market represents the perception of where that same currency pair will be trading at on a specific date in the future. For example, if you are trading the March 2009 Dollar / Yen, the price represents...
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ZJJJ

Newbie
1 0
I was hoping I might understand what spot forex and forex futures were after reading this but...sorry Im still confused!
 

Onslow

Newbie
1 0
"The "futures" market represents the perception of where that same currency pair will be trading at on a specific date in the future. For example, if you are trading the March 2009 Dollar / Yen, the price represents today's perceived value of the future (March 2009) exchange rate."

Wholly incorrect. Perception has nothing to do with the futures price. The futures price is simply the spot price adjusted for the forward interest rate differential, i.e the 'carry'. Futures cannot trade differently to spot beyond a few seconds because arbitrage with the cash would bring them rapidly back into line.

If you look at the futures price compared with spot, say, 3 months ahead, especially with a currency pair with large interest rate differentials such as AUD/USD, then it will be distinctly different. But as maturity gets closer, it will converge to the spot rate. Has to.
 

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