Currency Futures Trading
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Currency futures trading are a complicated process by which various countries' currencies are traded against the dollar. It is a concept that began in 1972 when the gold standard was ended. The gold standard stated that there must be enough gold in the treasury to cover each dollar printed. Once that was dissolved, the actual value of the dollar began fluctuating, allowing for speculation on what might be its value weeks or months down the line. The agreements are built around a future date, but since the numbers change daily, the agreements can also be ended on a daily basis if desired.
Futures trading in currency are the arena of the Chicago Mercantile Exchange which oversees and hosts the trade business that takes place each day,Monday through Friday. Almost three hundred and fifty billion dollars of trading happens each work day and there appears to be no downward trend in the growth. Futures' exchanges involves not only currency exchanges, but livestock, agricultural products and precious metals. These various products are often referred to as commodities. Currency futures trading often referred to as FX markets, happen on the floor at the Chicago Mercantile Exchange and occur through the well known practice of bidders shouting out bids as well as through electronic bidding. Large banks, hedge funds and multinational corporations all participate in currency futures trading. "In God is my salvation and my glory: the rock of my strength and, my refuge, is in God." (Psalm 62:7)
All futures trading markets have two types of investors: those interested in protecting their investment and those who speculate on what the price will be at some future date. Typically, hedgers are those who produce and manufacture the agricultural products and glean the precious metals. Speculators are interested in taking risks to bet on what the price of products will be at a later date. The hedgers bite their fingernails, the speculators chew their finger and toe nails and both are in therapy for severe psychological issues. Okay, that's just a little humor but it is a very explosive and highly fluid atmosphere in which the trader must operate. The chances for stratospheric profits and devastating losses and both present. Futures trading, including currency futures trading is not for the faint of heart.
The big boys in this business are the ones not seen on the floor of the Chicago and New York exchanges. The guys and ladies yelling and looking flush or glum on the television are locals or floor traders who are trying to make money for their own accounts. These independent traders hope to make small profits all day long on selling and buying various futures in the space of a few minutes. These small traders help keep the markets moving, sometimes called market liquidity. These are the guys who have never heard the words of Will Rogers.
Currency futures trading are all based on leveraging. This means it only takes a relatively small amount of money to control a large amount. Recently it took $4700.00 to control $62,000 in British pounds. Should the pound do quite well against the dollar in a particular calendar cycle, a large fortune could be made with just this relatively small initial margin and maintenance margin fee. Should the pound drop on the date specified, not only could the margin and maintenance fess be gone, but also money from the trader's pocket. All would depend on how much the pound dropped against the dollar.
There are a number of phrases that are thrown around in money futures trading that may sound rather strange. Remember that in currency futures trading there are always two countries' currencies at play and one of them usually being the US dollar. "Going long" means that you are expecting the dollar to gain strength against a particular currency in the months to come and is known as a currency call option. A currency put option is the opposite, used to describe the bet that the dollar will drop in value. The strike price is the number of the currency difference at the beginning of the agreement. A long strangle is when the trader hedges and puts up both call option and a put option because the market is so volatile. There are many other components in the currency futures trading business, all pointing to the fact that this trading is very complicated and demands those who really know what they are doing to participate.
The trading of commodities is not for the one who longs for security and a rock to hide under in the midst of inclement weather. A very high percentage of traders lose money and some have lost fortunes. The commodities market, including currency futures trading is especially hard on the person trying a make a quick buck, a fast hundred thousand, a killing in the market. They are people who cannot control what they are doing and get excited at the prospect of being "this close" to the big deal. No matter how well the plan is laid out, no matter how much effort goes into being safe, commodities trading can turn on one phrase by a governmental leader such as James Baker saying in the press conference the initial word "Regrettably" after talking to the Iraqi foreign minister in 1991. Oh yeah, that Will Rogers really could turn a phrase. "I am not as concerned about the return on my money as I am about the return of my money."
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