Summary:
Learn about the role of futures in the financial market with EBC's guide. Understand how these tools can help traders in their investments.
Futures trading refers to the arrangement where buyers and sellers sign relevant contracts in the futures market to determine the amount for a specific transaction at a certain point in the future. This type of contract is called a "futures contract", in which the buyer (long-term investor or speculator) will receive a right to trade forex on a spot basis, while the seller (short-term investor or speculator or futures firm) will have an obligation on a specific future date. This special trade is implemented on a specified transaction date, using exchange rates to measure future payments and changes in transaction prices.
The Role of Futures Mainly Includes the Following Aspects:
1. Forex Hedging. This is the main function of the futures market. It is mainly to reduce or eliminate the risk of future spot market by using the law that the futures market and spot market have roughly the same price trend, and taking futures trading with the same currency and the same quantity in the opposite direction to the spot position. No matter how the exchange rate changes, using the mutual balance between losses and gains can keep the value unchanged and achieve value preservation.
2. Forex Speculation. It refers to the act of obtaining profits and bearing corresponding risks from changes in futures prices based on buying and selling futures contracts. The basic principle of speculative trading is that speculators make predictions about the price trend of futures and buy or sell a certain number of contracts. If the predictions are correct, they can earn profits, but if the predictions are incorrect, they will lose money and bear corresponding risks. Due to the necessity of margin trading in futures trading, speculators can only use small capital to engage in larger forex trading.
3. Risk Management: The futures market provides a range of futures contracts, including standardized forward forex and forex futures options. Investors can leverage these contracts for effective risk management and hedging strategies to minimize trading risks.
4. Improved liquidity: The existence of the futures market has increased the liquidity of the forex market, making it more open and transparent, and promoting the development of the global forex market.
【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.
Learn what a mitigation block is in forex and stocks. Explore its role in price action, with examples to help you trade trends and reversals with confidence.
2025-08-22
Discover the key factors behind the recent drop in Pakistan Stock Exchange today, with insights to help traders navigate the volatile market.
2025-08-22
Discover how swap points link spot and forward FX rates, reflecting interest gaps and shaping trading and hedging strategies.
2025-08-22
