Forex Trading System for major currencies and futures

A futures contract is an agreement between two parties: A short position is taken by the party who agrees to deliver a commodity, and a long position is taken by the party who agrees to receive a commodity on a pre-arranged date. For example, a grain farmer would be the holder of the short position (agreeing to sell the grain), while the bakery would be the holder of the long position (agreeing to buy the grain).

In every futures contract, everything is precisely specified: the quantity and quality
(or grade) of the underlying commodity, the specific price per unit, and the date and
method of delivery. The price of a futures contract is represented by the agreed-upon
price of the underlying commodity or financial instrument that will be delivered in the future. For example, in the above scenario, the size of the contract is 5,000 bushels of soft red #2 wheat at a price of 317 cents per bushel, and the delivery date may be the third Wednesday in September of the current year.

The Forex market is essentially a cash or spot market in which over 90 percent of
the trades are liquidated within 48 hours. Currency trades held longer than this are normally routed through an authorized commodity futures exchange such as the Interna-
tional Monetary Market (IMM). It was founded in 1972 and is a division of the Chicago
Mercantile Exchange (CME) that specializes in currency futures, interest-rate futures,and stock index futures, as well as options on futures. Clearing houses (the futures exchange) and introducing brokers are subject to more stringent regulations from the SEC, CFTC, and NFA agencies than the Forex spot market (see www.cme.com and
www.cbot.com for more details).

FUTURES VOLUME AND OPEN INTEREST

Volume is the number of futures contracts traded within a given time period. Open in-
terest is the number of open futures contracts at any given time. Even though the volume and open interest of Forex spot currencies are presently not accessible, it is still possible to compare them with currency futures just as a point of perspective. Table 21.1 summarizes the trading activity of selected futures contracts in currencies, precious metals, and some financial instruments. The volume and open interest readings are intended only to provide a brief synopsis of each market’s liquidity and volatility based on the average of 30 trading days.

Table 21.2 lists the identical contracts but for the date June 4, 2004.

Note that all currency contracts (except the Canadian Dollar) exhibited a signifi-
cant increase in volume and most showed an increase in open interest over the five-
month time frame.