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Currency Futures

Information about currency futures

What are Currency Futures? | How can I start currency trading? | What are the benefits of currency futures trading? | Risks of trading Currency Futures | What are the trading costs for currency futures? | What currency futures contracts are available? | Where can I find more information about currency futures and currency futures?

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WHAT ARE CURRENCY FUTURES?

The Johannesburg Stock Exchange (JSE) introduced currency future contracts during 2007 to allow local traders the ability to gain exposure to foreign currency movements relative to the Rand without affecting their offshore allowance.

Essentially, currency future contracts allow traders to benefit from the movement in the currency futures rate between the Rand and several major international currencies. Currency traders can also buy and sell currency pairs in order to obtain "long" or "short" exposure - in other words make money while the currency exchange rates move up or down. This happens automatically when the investor decides to either buy Dollar and sell Rand - or buy Rand and sell Dollar.

Currency traders do not have to deposit cash to match the whole value of the futures position, as this is a geared product. Currency traders need only deposit enough cash to cover the initial margin, which is a fixed rand amount per contract equal to between 10% and 20% per contract.

Investors may use currency futures for a variety of reasons. A farmer importing machinery from France may choose to buy Euro contracts as a means to hedge against a weakening EURZAR. An investor with ordinary shares in Sasol may choose to buy Dollar contracts in order to protect their Sasol holdings from Rand strength. A speculator who views the Pound as being overvalued relative to the Rand may decide to sell GBPZAR contracts in order to benefit from the currency exchange should this move take place.

As one of the few full time dedicated currency futures brokers, PSG Online possesses the expertise and skills to allow clients to trade currencies with confidence. We offer an expert team of professional currency traders who will provide you with regular currency trading ideas to decipher market movements.

WHAT IS THE DIFFERENCE BETWEEN CURRENCY FUTURES AND FOREX TRADING?

Those looking to profit from fluctuations in currency valuations have two currency trading forums, spot foreign exchange trading and currency futures. With spot foreign exchange trading, the underlying currencies are physically exchanged following the settlement date. In general, any spot market like forex trading involves the actual exchange of the underlying asset. For example, whenever a person goes to a bank to do a currency exchange, that person is participating in the forex trading.

The main difference between spot foreign exchange trading and currency futures is when the currency trading price is determined and when the currency pair exchange takes place. The price of currency futures is determined when the currency futures contract is signed and the currency pair is exchanged on the future delivery date. The price of spot forex trading is also determined at the point of trade, but the currency pair exchange takes place immediately or shortly thereafter. It is important to note that currency traders in the futures currency futures markets are speculators who usually close out their positions before the date of settlement, so most currency futures contracts do not last until the delivery date. Currency futures are often used as hedging instruments by foreign exchange traders. Currency futures have opened up the market to smaller currency futures traders to trade currencies effectively through gearing.

HOW CAN I START CURRENCY TRADING?

You are welcome to contact our skilled team of currency future traders at 0860 774 774 or via email. They will arrange the opening of the account and ensure that all your trades are executed at the best available price.

WHAT ARE THE BENEFITS OF CURRENCY FUTURES TRADING?

Currency futures are standardised currency exchange contracts that are traded on the JSE's currency future's exchange, with a centralised order book. This means that buy and sell prices are posted in real-time onto the central market by the relevant market makers, which allows for transparent pricing of the currency exchange.

Being a listed product has numerous benefits:

Futures are geared products, which means currency traders do not have to deposit cash to cover the full value of the position.
Futures allow individual investors to take a view on the movement of the currency futures rate and provide them with access to favourable rates usually reserved for larger corporate clients.
Tight spreads and low currency trading costs allow clients currency futures traders to enter and exit positions in the knowledge that profits are not being paid away each time there is a trade on the account.
Importers and exporters can dynamically hedge their currency risk far more efficiently using futures due to the ease of entering and exiting futures positions and the low cost per trade.
The presence of dedicated market makers ensures market liquidity and ensures that currency traders can open and close currency exchange contracts with multiple counterparties.
The daily mark-to-market process allows clients the ability to track their profit or loss situation and to adjust their portfolio accordingly.
Once the position has been closed out all settlement occurs in Rand.
You will also receive daily statements showing your margin and cash movement

RISKS OF TRADING CURRENCY FUTURES

Each Currency Future Trade is unique and comes with its own associated risks, including volatility, exchange rate risk, credit risk, monetary risk, interest rate risk, and the possibility of government intervention in the financial markets. An experienced investor learns to evaluate these variables before making a currency transaction.

Currency Future Trading requires a high appetite for risk, time to watch the markets and an expert knowledge of the currency markets and associated trading process.

In addition, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

WHAT ARE THE TRADING COSTS FOR CURRENCY FUTURES?

Currency exchange trades are charged at R18.00 (incl VAT) per contract.

WHAT CURRENCY FUTURES CONTRACTS ARE AVAILABLE?

Futures offer traders looking for a hedge a variety of advantages as a means to manage their currency risk and speculators a low cost option to express their currency view. The currency pairs currently available to trade against the Rand on the JSE's Currency Futures exchange are: