The currency futures market is a market where the underlying commodity is the exchange rate of a currency. As such, it is a derivative of the Forex market and much smaller in size. Currency futures are contracts to exchange one currency for another at a predefined date. While in Forex any currency can be bought and sold against any other currency, most currency futures are quoted against the
USD. They are traded via exchanges, not via brokers as is common in the Forex market.
Currency futures are used to speculate with the goal of profiting from changing exchange rates. They can be used to reduce the risk of adverse price movements in the Forex market. A contract can be closed out at any time before the predefined contract date. If you know you will receive a certain amount of foreign currency at a specific date, you can “lock in” the current exchange rate through currency futures that expire the day you receive the amount. This is how investors hedge against foreign exchange risk.
