What is the relationship between trading the Financial Currency Futures and the Spot Foreign Exchange market?

Written by Research

The reason behind this is simply to be able to see the overall view of both markets working hand in hand with each other. It normally gives a better perspective of how prices in the future months are priced at. Although these prices are relatively inverse to the spot price it reflects a mirror image of the currency and it also provides the activity of prices in the future months. As volume, open interest and price are measured it can determine the trend of the futures prices and how it affects the prices relative to the cash market. Some traders use this market to build hedging positions to level off the inherent risk while holding current cash positions. This is the primary reason why money managers and traders utilize the futures market to their advantage and be able to arbitrary hedge other positions as well.