Forex Futures
Forex futures contracts are a popular trading derivative. As one of the most liquid trading instruments, FX futures are frequently used by traders to dampen the downside of exchange rate movements. Here we explain what forex futures are, why they are useful and how to trade them. We also highlight the differences between the heavily regulated UK futures market and decentralised spot forex.
Brokers with Forex Futures
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IBKR presents an extensive range of over 100 major, minor, and exotic forex pairs, surpassing the offerings of nearly all leading alternatives, though not CMC Markets. Forex trading occurs over multiple platforms and boasts institutional-grade spreads starting from 0.1 pips and 20 complex order types, including brackets, scale, and one-cancels-all (OCA) orders.
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XM offers ultra low spreads across a wide range of forex assets with no re-quotes or hidden charges. Over 50 currency pairs are available, which is above the market average and is in line with one of our top award-winners, AvaTrade.
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FxPro offers 70+ currency pairs with ultra-fast execution speeds and tight spreads from 0.46 pips on EUR/USD. The range of forex assets outranks many rivals, including our award winner, AvaTrade. Various short-term forex strategies are permitted, including EA trading and hedging.
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Plus500 provides forex trading through CFDs, featuring narrow spreads across an impressive selection of over 60 currency pairs. During testing, spreads came in as tight as 0.6 pips on the EUR/USD, which is notably lower than many alternatives.
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IG offers an above-average suite of 80+ currency pairs on its proprietary web platform, mobile app or MetaTrader 4, with more advanced charts and forex analysis tools available on the ProRealTime software. Forex spreads are competitive based on tests, starting from 0.1 pips on majors like the EUR/USD.
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Markets.com offers 43 major, minor and exotic currency pairs. The range is around the industry average, though spreads are fairly competitive, starting from 0.6 pips for EUR/USD. There’s also an excellent range of tools and education, including forex calculators and trading videos.
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NinjaTraders supports the trading of popular currencies including the EUR/USD. The software also offers advanced features to streamline the trading experience, including complex order types like market if touched (MIT) and one cancels other (OCO).
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Trade 35 major, minor and exotic forex pairs through CFDs with floating spreads from 0.1 pips. Alternatively, binary options allow you to speculate on rising and falling prices with a fixed stake and payout.
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IC Markets maintains its commitment to providing exceptionally tight 0.0-pip forex spreads on major currency pairs such as EUR/USD. This makes it an excellent option if you are seeking superior execution, with an average of 35 milliseconds. Additionally, if you are a high-volume trader, you can benefit from rebates of up to $2.50 per forex lot.
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FOREX.com continues to uphold its stature as a premier FX broker, offering over 80 currency pairs and boasting some of the most competitive fees in the industry. With EUR/USD spreads dipping as low as 0.0 and $5 commission per $100k, it stands out. Moreover, its SMART Signals help to identify price behaviors across numerous major currency markets.
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PrimeXBT offers 50 forex pairs, which is above the industry average and covers a good range of majors, minors and exotics. Traders can enjoy trading via margin with zero commissions. Additionally, the broker’s copy trading service allows you to explore various currency trading strategies.
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An above-average selection of 55 currencies are available with reasonable spreads averaging 0.9 pips on EUR/USD during peak hours. Aspiring traders can continuously hone their forex strategies by switching between demo mode and their live account any time, with full access to the broker's 100+ technical indicators.
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OspreyFX offers more than 50 major, minor and exotic currency pairs. Spreads start from just 0.1 pips on the EUR/USD and the broker provides a suite of forex trading education for beginners, including partnering with Forex Squad.
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Trade 70+ major, minor and exotic forex pair CFDs with up to 1:1000 leverage, no commission fees and competitive spreads from 0.8 pips. FX trades can also be executed via the reliable and fast MetaTrader 5 software.
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Ingot Brokers offers forex trading on a modest suite of 30+ currency pairs with raw spreads on the MT5 platform. There are also no restrictions on short-term trading strategies, including hedging, scalping and the use of Expert Advisors (EAs).
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Axofa offers a decent range of 50+ forex pairs with raw spreads from 0.0 pips. Very high leverage up to 1:1000 and commission-free forex trading is available. With that said, the broker is not particularly transparent when it comes to account conditions and fees.
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Go long or short on over 50 currency pairs with spreads from 0.6 pips on EUR/USD. Traders can access market-leading forex tools in the MT4 platform, including customisable forex charts and algorithmic trading.
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Trade 25+ major and minor currency pairs with access to over 30 technical indicators in the broker's proprietary terminal. You can also follow and replicate other forex trades using the integrated copy trader.
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Scope Markets offers 40+ major, minor and exotic currency pairs. Although the range is average, experienced traders can access very high leverage up to 1:2000. Additionally, the broker’s proprietary terminal delivers advanced analysis tools, including a live forex heatmap.
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Rock Global clients can access 50+ currency pairs via CFDs with leverage up to 1:500, world class liquidity and fast execution on the MT4 or TWS platforms. The tight spreads from 0.9 with no commission are a particularly attractive feature.
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PU Prime clients can trade 40+ forex pairs via the MT4 and MT5 platforms with dynamic leverage up to 1:500. Spreads start from near zero on Prime accounts, which also charge a $7 commission per lot, and a zero-commission Standard account with wider spreads is also available.
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Trade Nation offers over 30 of the most popular forex pairs with variable spreads. Traders can access a slick proprietary platform or MetaTrader 4, with real-time forex market updates and insights via 'Smart News'.
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As well as a competitive selection of 55+ forex pairs, traders can access high leverage up to 1:300. You can also enjoy advanced analysis from Trading Central with easy integration into MetaTrader 4.
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Traders can access a decent range of 60+ major, minor and exotic forex pairs through standard and ECN accounts with tight spreads from 0.5 and 0.0, respectively. Execution speeds are also faster than most competitors at 50ms, which will appeal to active forex traders.
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ActivTrades is a great broker for active forex traders with industry-low spreads from 0.5 pips and zero commissions. The forex broker also offers impressive execution quality and speeds, alongside award-winning customer service.
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BlackBull offers 64 forex pairs with very competitive pricing through its ECN accounts, with the standard commission-free spread starting from 0.8 and spreads with commission starting from zero. The broker supports diverse trading platforms including MT4 and MT5, and provides leverage up to 1:500.
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RoboForex offers trading on 30+ currency pairs, trailing category leaders like Pepperstone with its 90+ forex assets. That said, the Prime and ECN accounts feature competitive average spreads of 0.1 pips on the EUR/USD. Additionally, with a minimum investment of $100, traders can utilize the CopyFX system to replicate the strategies of seasoned currency traders.
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Swissquote offers trading on a huge range of forex assets, covering 80+ currency pairs. Spreads start from 1.3 pips with the Premium account and there are zero commissions. Micro, mini and standard lot sizes are available plus options contracts on major currencies.
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You can go long or short on over 50 forex pairs from majors to exotics, with competitive spreads as low as 0.1 pips. The broker offers the leading charting software, MetaTrader 4, which delivers a host of advanced features, including 9 timeframes and over 30 indicators.
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Trade on 45+ majors, minors, crosses and exotics, with competitive pricing, ultra-fast execution and no requotes. Newer traders can access zero-commission trading. Experienced forex traders can operate with no trading restrictions and benefit from an ECN account and a VPS service.
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FP Markets is a good option for forex traders, with 70+ pairs covering an excellent range of currencies. Spreads are already tight on standard accounts and start from zero on raw spread accounts, and the broker offers high leverage up to 1:500 and top-tier liquidity.
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IronFX continues to offer a strong selection of 80 currency pairs. You can trade through the market-leading MT4 platform with a range of forex market research tools. That said, commission charges in the zero-spread accounts are high, starting from $13.50 per lot.
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HYCM offers 40+ forex pairs, with most available to trade on either the MT4 or MT5 platform. The maximum leverage on offer is 1:30 in accordance with regulations, and tight spreads start from 0.2 on the Raw account and from 1.2 on the commission-free Classic account.
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Trade 45 major, minor and exotic forex pairs. This is an average range, but the broker offers attractive and very competitive tight floating spreads from 0.3. Useful features including a news feed set the broker apart from many rivals and can help plan forex strategies.
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Speculate on popular currency pairs with flexible leverage up to 1:500 and zero-pip spreads in the GO Plus account. Commission-free trading is available with micro, mini and standard forex contract sizes.
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Tier 1 liquidity on an impressive range of 189 currency pairs and spot metals, plus 130 forwards, from 0.4 pips.
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InstaForex's range of 100+ currency pairs is among the largest we have seen. ECN spreads are also available from 0.0 pips with zero commissions. Minimum deposits start from $1 making the broker accessible for beginners. You can also access market-leading forex analysis and insights.
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Capital.com offer a long list of forex CFD pairs for trading. All have competitive spreads. The firm also ensures negative balance protection
Forex Futures Explained
Forex futures are contracts to buy/sell currency at a set time and value in the future. Changes in the value of currency have the potential to dramatically impact trading for international firms. Futures can help to minimise downside and maximise upside for traders who expect movements in exchange rates.
For example, consider a company in the US that has agreed to buy a machine from an Italian factory for EUR 1.1million. If the current exchange rate for USD/EUR is 1:1.1 then this will cost the firm $1 million to purchase. But, if the exchange rate moves to 1:1 the new machine price will be $1.1million – costing the company $100,000 more than they originally expected.
To avoid this scenario, the company might purchase five forex futures contracts with a value of $200,000 each. These contracts allow them to purchase at the current exchange rate on a set date in the future. If the exchange rate improves, they’ve lost the benefit they could have seen. But, crucially, if the exchange rate worsens, they don’t have to fork out the extra $100k they would have done had they had traded currency at the new rate.
Forex futures and options are often quoted together. The latter gives the contracted party an option to purchase the currency pairs at the old rate vs futures which are the obligation to.
There are futures and options available on most tradable assets – it’s not restricted to forex. This hedging tactic can be utilised on stocks, bonds and indices such as the S&P 500 (ticker symbol ^GSPC), Dow Jones (DJC) or USD index (DX); or commodities such as gold (GC), natural gas (NG), and crude oil (CL).
What Makes A Forex Future?
Forex futures have a number of differences compared to other assets.
Standardised
Forex futures contracts are standardised and not customisable. This ensures they’re ease of trade on futures exchanges.
The nominal amount (eg. AUD$100,000), margin, maturity date, and delivery date are all standardised. The only contract component which is not is the price. This is determined by supply and demand on the exchange.
There are smaller forex contracts available for those looking for lower nominal amounts and margin requirements. These are known as ‘mini’ futures which are half the size of a standard contract. E-minis are even smaller, at one tenth vs the standard. And e-micro forex futures contracts are one tenth of an e-mini (i.e. one hundredth of a standard).
Publicly Traded On A Futures Exchange
Just like stocks on the National Stock Exchange (NSE), forex futures are traded through specific futures exchanges such as the Chicago Mercantile Exchange (CME Globex) or ICE Futures Europe in the UK.
To trade on live exchanges, brokers must be a futures association member (eg. part of the NFA in the US) or in the case of ICE, be a registered participant.
Some notable examples of futures brokers include TD Ameritrade, Interactive Brokers, and TradeStation.
The Tick (Minimum Price Fluctuation)
Another standardised feature of a forex futures contract is minimum price fluctuation know as ‘the tick’. Ticks are unique to the instrument being traded. For example, in forex, the USD tick size will always be $0.01. What that means on a contract size of $125,000 is that the minimum price fluctuation for the contract to be enforced is $1,250.
Margin & Leverage
Forex futures work on leverage, so a trader does not have to put down the full nominal value in order to invest. Instead, they use the margin as consideration (or a down payment) for the trade. The margin is a fraction of the nominal value, facilitating liquidity in the futures market. However, this means there’s a risk that losses could exceed the margin amount.
Despite this, because of UK regulation in the market, leverages on forex futures tend to be lower than for spot forex, which can be up to 1:500 at unregulated brokers.
Guaranteed By Clearing Houses
Once a trade has been executed, a third-party, known as a clearing house, steps in to ensure the trade has cleared and settled. Clearing houses also guarantee trades against credit losses ensuring that there is no risk of default by either party.
Benefits Of Trading Forex Futures
Forex Futures vs Spot Forex
Trading forex futures has some pros when compared to with trading spot forex. Spot forex trading involves buying/selling currency pairs (eg. USD/CAD) on the day of the trade. You’re exchanging one currency for another. But, there are major differences in how these instruments are traded (as mentioned above) which bring a number of benefits.
In particular, since there’s a central exchange, there are no market makers. Therefore, futures brokers cannot trade against you and there are no spreads.
You’ll also notice that volume and positioning data is hard to come by for spot forex, as it would only reflect the volume traded through the individual broker. Sharing this data would be the equivalent of Apple telling the market how many handsets they sold today and being able to compare this to their competitor’s sales. With futures, you’ll be able to access this data more easily because trading is centralised and heavily regulated by the FCA.
Forex Futures Strategies
There are a number of strategies that can be used when trading forex futures. Some of these are unique to futures and others you may recognise as similar to spot forex strategies.
- Speculation – Traders can use futures to speculate on a change in the value of a currency, index, stock or commodity and profit from the difference.
- Hedging – Hedging forex with futures reduces the risk of currency price movements on trade agreements. This tactic comes with pros and cons – investors won’t reap the benefits of a favourable price movement, but will mitigate the risk against an unfavourable one. It’s also useful for businesses reliant on commodities (such as natural rubber, gold or silver) who know that they’ll need to purchase in the future.
- Arbitrage – Forex traders can use the ‘futures spreads’ technique to benefit from discrepancies in market prices by taking both a long and a short position at the same time.
- Day trading – Day traders hold positions for a very short time period vs swing traders who could hold on for months. Letting a futures position rollover to the next day or over the weekend exposes you to risk. This is particularly prevalent on the forex market as exchange rates may not open at the same rate they closed at. Day trading eliminates this risk.
Where Are Forex Futures Traded?
Whilst forex futures are traded on centralised exchanges, as a retail trader you can enter the market using a broker. There are fewer futures brokerages than spot forex due to the heavy UK regulation on this instrument.
The best forex futures brokers enable you to trade the assets directly. Examples include Interactive Brokers, ADM Investor Services, AMT Futures Ltd & GHC Capital markets Ltd. All of these brokers are registered participants of the ICE Futures Exchange which facilitates global futures trades.There are also retail brokers which will offer you spread bets and CFDs on forex futures. You will not own the underlying futures contract, but will instead be trading on a derivative of futures. Brokers include FxPro, XM and Forex.com. Most providers offer detailed forex futures charts, symbols and quotes.
Trading on forex futures is available 24 hours a day, Monday-Friday.
Final Word On Forex Futures
Trading forex futures is big business in the UK. The financial product offers a means to hedge against exchange rate risks and to trade on the financial markets with leverage. Forex futures are available at multiple regulated trading brokers in the UK, though it is worth highlighting, spot forex and CFDs on forex are more readily available.
FAQ
Is The Forex Futures Market The Same As A Spot Forex Market?
No, spot forex is trading one currency for another in a pair. The exchange takes place on the day the trade is executed. Futures are a commitment to purchase the currency at a later date, at a set price. They are considered derivatives, as they are a contract based on an underlying asset. Whilst the two markets are linked, there is not necessarily a correlation between them.
How Do Forex Futures Work?
Forex futures are financial derivative contracts that commit to purchasing currency at a set rate on a future date. They are often used to speculate on currency fluctuations or to hedge against poor exchange rates.
Are Forex Futures Profitable?
Yes, forex futures can be profitable if you have the right strategy in place. However, speculating on exchange rates is risky, particularly if you’re trading CFDs with high leverage. Some brokers, such as Daniel’s Trading, offer forex futures calculators to help you understand your risk and reward potential. Always ensure you understand the investment fully before you trade.
Does My Broker Offer Forex Futures?
A broker must be a registered participant of an exchange to trade forex futures. Most retail brokers offer CFDs on futures instead. Check our broker reviews to find a provider that’s right for you.
Forex Futures Vs Stocks - Which Is Better?
Neither asset is better than the other. The choice depends on your expertise, interests and risk appetite. Both are traded on centralised exchanges and are heavily regulated, and both can be profitable with a considered approach. But equally, they can be risky if you’re not willing to put the hours in to do the analysis.