The Ultimate Guide to ForTheex Derivatives Risk Management Speculation & Profits

1. The Ultimate Guide to Forex Derivatives: Risk Management, Speculation & Profits Types of Derivatives: Futures, Options, Swaps & CFDs Explained The derivatives market provides different, and sometimes distinctly different, inst ruments available for trading that are suited for specific trading scenarios. Unders tanding the distinctions between the instruments allows you to use the correct ap plicable tool in your trading plan.trade forex Futures: The Price You Lock in Today for Tomorrow Futures are standardized contracts that create an obligation to buy or sell an asset for delivery at a predetermined price on a set date in the future. One can think of it like pre-ordering Christmas gifts in July. You place a "reservation" on an asset to buy it at a price that does not reflect the future demand during the last-minute s hopping periods, which price is likely to be higher than if purchased early. For our professional trader example, a Japanese consumer electronics manufactur er may utilize futures contracts in USD/JPY to hedge against adverse currency movements in the procurement of American components. Globally, the Chicago Mercantile Exchange (CME) and NYMEX handle billions of dollars a day of tra nsactions in futures contracts in everything from currencies to crude oil futures. Options: You Have the Option to Choose

2. Options give you the right, but not an obligation, to buy or sell an asset at a prede termined price before the expiration of the option period. Options are like holdin g a cinema ticket that gives you the right to see the film, or not to see it at all. Professional traders utilize EUR/USD call options, which entails paying a premiu m for the optionality itself in order to execute the option only if the market favors an execution. The Chicago Board Options Exchange (CBOE) regularly facilitate s an immense quantity of foreign exchange (forex) options trades, giving traders strategic flexibility with their position and exposure to currency markets without commitment to a full position.trading cfd Swaps: Exchanging Cash Flows Swaps are defined contracts that two parties enter into, whereby they exchange c ash flows based on underlying variables (e.g. currencies, interest rates). One can i magine a scenario where two friends swap lunches each week in order to eat som ething different without incurring any additional cost by purchasing lunch. These swaps are often used by multinational corporations to manage interest pay ments in different currencies across different countries. For example, if a Europe an multinationals borrows in dollars but earns Euros, a simple interest rate swap contract tied to an interest rate benchmark (e.g. LIBOR or SONIA), helps them manage their exposure.