What Is Forex Futures Trading And How To Do It?

Forex futures trading is a standardized buying and selling of currency at a predetermined price on a set date. It is a formal agreement with standard terms like expiration date and contract size. Forex futures trading is a global market popular among retail traders, institutional investors, and businesses. 

At WR Trading, we’ve analyzed in detail and explained how to navigate the forex futures market below. Here are some of the markets key facts:

What Are Forex Futures?

Forex futures are exchange-traded standardized contracts requiring buyer and seller to conduct a transaction on a predetermined date at a set price. Most traders trade these contracts on marketplaces like the Chicago Mercantile Exchange (CME) Group via CME Globex to ensure pricing liquidity against potential currency risk.

Some of the common Forex Futures on CME Group are:

• Euro FX Futures
• Canadian Dollar Futures
• Japanese Yen Futures
• British Pound Futures 
• Australian Dollar Futures
• Mexican Peso Futures
• Brazilian Real Futures
• South African Rand Futures

Contract Name	Contract Symbol	Tick Size	Tick Value	Contract Size	Trading Hours (ET)
Euro FX Futures	6E	0.0001	$12.50	125,000 EUR	6 PM – 5 PM ET (Sun-Fri)
Canadian Dollar Futures	6C	0.0001	$10.00	100,000 CAD	6 PM – 5 PM ET (Sun-Fri)
Japanese Yen Futures	6J	0.01	$12.50	12,500,000 JPY	6 PM – 5 PM ET (Sun-Fri)
British Pound Futures	6B	0.0001	$6.25	62,500 GBP	6 PM – 5 PM ET (Sun-Fri)
Australian Dollar Futures	6A	0.0001	$10.00	100,000 AUD	6 PM – 5 PM ET (Sun-Fri)
Mexican Peso Futures	6M	0.00005	$25.00	500,000 MXN	6 PM – 5 PM ET (Sun-Fri)
Brazilian Real Futures	6L	0.00005	$12.50	50,000 BRL	6 PM – 5 PM ET (Sun-Fri)
South African Rand Futures	6Z	0.0001	$10.00	500,000 ZAR	6 PM – 5 PM ET (Sun-Fri)

Examining an FX Futures Contract on CME Group

For instance, let’s examine a detailed breakdown of a specific contract from the product catalog at CME Group:

• Contract Name: Euro FX Futures (Globex code: 6EZ4)
• Trading Volume: 25,701
• Contract Size: €125,000 per contract 
• Tick Size: Minimum price fluctuation is 0.0001, which is equivalent to $12.50 per contract
• Trading Hours: Nearly 24 hours of access from Sunday 5:00 p.m. to Friday 4:00 p.m. Central Time, with a 60-minute break daily beginning at 4:00 p.m.
• Expiration: Trading terminates at 9:16 a.m. CT, two business days before the third Wednesday of the contract month

Let’s say a trader expects the EUR (euro) to strengthen against the USD (U.S. dollar) and decides to purchase one Euro FX Futures contract at $1.1000:

• Initial purchase price: $1.1000/euro
• Contract value: Multiply the Contract Size by the Purchase Price (125,000 x 1.1000 = $137,500) 

If the euro price moves from $1.1000 to $1.1050, the price difference changes to $0.0050. The number of ticks will now be 0.0050 divided by 0.0001, giving us 50 ticks. Since each tick is worth $12.50, the trader’s profit will be 50 ticks x $12.50 tick, giving $625. Simultaneously, if the euro price falls to $1.0950, the trader will incur a loss of $625. 

Can Forex be Traded via Futures?

Yes, you can trade forex using futures. The difference here is that forex trading is the buying and selling of currency, and futures trading is a way to trade the future value of a currency pair. Some examples of popular currency pairs that dominate the forex futures include:

• EUR/USD (Euro/U.S. dollar)
• USD/CNY (US dollar/Chinese Yuan renminbi)
• EUR/GBP (Euro/British pound sterling)
• USD/JPY (U.S. dollar/Japanese yen)
• AUD/USD (Australian dollar/U.S. dollar)
• NZD/USD (New Zealand dollar/U.S. dollar)
• USD/CHF (U.S. dollar/Swiss franc)
• GBP/USD (British pound sterling/U.S. dollar)
• USD/CAD (U.S. dollar/Canadian dollar)

Futures vs. Forex Markets

The futures and forex markets have key differences, some of which include:

Market Structure

Futures contracts are standardized exchange-traded markets with the same trading terms for all traders. For example, the Euro FX Futures on the CME Group has a fixed size of €125,000 for all traders. In this market, you can trade several assets, such as commodities, indexes, and currencies. Futures contracts are also centralized, thereby reducing trading risk and ensuring a smooth transaction process. 

While the forex market is a decentralized over-the-counter market where traders can trade currency pairs only. Here, the prices and terms may vary between brokers because there is no centralized system. Trades in this market are customizable, allowing traders to transact in any amount without standard contract sizes. This leads to less transparency compared to futures. 

Transaction Costs

Most forex brokers earn money from bid-ask spreads, but some also charge commissions. The fee from spreads may fluctuate based on market volatility, liquidity, and trade size. The volatility in this market makes transaction costs less predictable, thereby impacting profit. 

Leverage and Margin Requirements

Forex offers higher leverage compared to futures trading. Forex leverage often goes up to 1:500 for retail traders, depending on the jurisdiction and broker. This enables traders to control large trading positions with small capital, thereby increasing potential returns. However, the higher leverage also increases the risk of significant trading losses. 

Regulation

Futures are more regulated by bodies like the Commodity Futures Trading Commission (CFTC) in the United States. The regulation ensures that futures transactions comply with rules regarding transparency and operational standards.

While forex is less regulated globally compared to futures. Its regulation varies by country, as there are no centralized governing bodies for Forex Trading globally.

How to Trade Forex via Futures

Forex futures may seem complex for beginners. That’s why we’ve broken it down at WR Trading into steps to help you get started. Here’s a step-by-step guide for beginners:

Step 1: Pick a Suitable Futures Broker

The first step to trading forex via futures is to choose the right broker that offers access to forex futures trading. When selecting a broker, look out for the following criteria:

• Regulation: The broker must be regulated by a respectable financial authority like the CFTC. 
• Fees: Look out for their fee structure to know more about their margin requirements and hidden fees.
• Customer support: Choose a broker with good 24/7 customer support and educational resources. 

Some examples of brokers with the above criteria include IronBeam, EdgeClear, and Interactive Brokers. 

Step 2: Choose a Professional Trading Platform

After choosing a suitable broker, the next step is to choose a professional trading platform on which to analyze and execute trades. When selecting a platform, ensure it offers advanced charting tools, intuitive design, and real-time data integration to help you make faster and better trading decisions.

Examples of top trading platforms and their key features include:

• TradingView: This platform is popular for its user-friendly interface and charting tools.
• Sierra Chart: It is an ideal platform for traders looking for high-performance data integration.
• ATAS: The ATAS platform is known for its market volume analysis and ordered trading flow. 

Step 3: Deposit Money and Enable Data Feed

After choosing a broker and a platform, the next step is to create an account with the broker and deposit some funds. To activate your trading accounts, deposit a minimum amount based on the broker’s requirement. You can also subscribe to live market data from the broker to access accurate price movements for a fee.

Step 4: Log into the Platform

You can now log into the trading platform to familiarize yourself with the features available. As a beginner, you can practice trading strategies with demo accounts to understand order types like limit, market, and stop orders. 

Step 5: Start Trading Forex Futures

Once you are comfortable with the platform, the next step is to begin trading:

• First, analyze the market using technical analysis to identify potential trading opportunities
• Place your first trade by choosing a futures contract and position size based on your risk management plan
• Employ some risk management strategies like using stop-loss to protect your capital and diversifying your portfolio across different contracts.

What are the Pros and Cons of Forex Futures?

At WR Trading, we’ve analyzed some of the pros of trading forex futures:

• Forex futures have high liquidity, which makes it easy for traders to enter and exit trades.
• Forex futures trades can use futures contracts to hedge against price volatility in the market.
• Forex futures allow traders to diversify their portfolios across many assets, like indexes, interest rates, and commodities.

We’ve also analyzed some of the cons of trading forex futures, they are:

• Futures have a high risk as economic incidents like political instability and natural disasters can affect the prices of commodities, leading to unexpected losses.
• The volatility of the futures market can make it difficult for traders to manage risk and predict price movements.

How Much Money Do You Need to Trade Forex Futures?

The amount of money you need to trade forex futures depends on the contract’s initial margin requirement, which varies for each broker. Because of market fluctuations, it’s advisable to begin your trading journey with a balance that exceeds the margin requirements. 

Is There a Negative Balance Protection on Forex Futures?

No, forex futures do not offer negative balance protection because they are mostly traded on regulated exchanges with strict margin requirements. 

Forex Futures vs. Forex CFDs

Forex futures and Forex CFDs are both popular trading instruments, but they offer different advantages to traders. Forex futures have set expiration dates, which means that traders can only hold their trading positions for a specific period. 

However, this is not the case in forex CFDs, as they allow traders to hold their positions for as long as they wish without fear of closing them at a specific date. 

Forex futures’ transaction costs are also lower and more predictable than those of forex CFDs. This is because CFDs have wider spreads than futures, which increases transaction costs. 

Learn Forex Futures Trading with WR Trading

At WR Trading, we offer an education program that will aid your transition from beginner to seasoned trader. In our structured lessons, you will learn the fundamentals of forex futures and advanced trading techniques. Our training also focuses on finding trades with high-risk-reward ratios and strategies that will aid profitable trading. We offer personalized coaching, where you’ll gain practical insights on how to enhance your trading skills.

Conclusion

Forex futures is a popular form of trading among beginner and seasoned traders due to their standardized contracts, centralized exchanges, and regulated environment. As a beginner in the forex futures market, it is important to understand its trading costs and margin requirements. At WR Trading, we are here to coach you through your forex futures trading. We help you gain the confidence and skills you need to avoid costly trading mistakes. 

Frequently Asked Questions on Forex Futures Trading