ABSTRACT
Currency futures are standardized contracts that trade like conventional commodity futures on the floor of a futures exchange. Orders to buy or sell a fixed amount of foreign currency are received by brokers or exchange members.These orders, from companies, individuals, and even market-making commercial banks, are communicated to the floor of the futures exchange.At the exchange, orders to buy a currency – long positions – are matched with orders to sell – short positions. The exchange – or, more precisely, its clearing corporation – guarantees both sides of each two-sided contract, that is, the contract to buy and the contract to sell.The willingness to buy versus the willingness to sell moves futures prices up and down to maintain a balance between the number of buy and sell orders. The market-clearing price has historically been reached in the vibrant, somewhat chaotic-appearing trading pit of the futures exchange, although automation is changing the way these dynamic markets operate. Currency futures began trading in the International Money Market (IMM) of the Chicago Mercantile Exchange (CME) in 1972. Since then many other markets have opened, including the COMEX
commodities exchange in New York, the Chicago Board of Trade, and the London International Financial Futures Exchange (LIFFE). As mentioned in the previous chapter, non-deliverable forwards are very similar to currency futures.1 These are very widely traded, especially in parts of Asia, including Singapore.
