EuroDollar futures are high-risk financial instruments, because dozens of differently directed factors influence the value of each asset. Despite an abundance of forecasts, even the slightest force majeure can dramatically change the market situation and lead to serious revisions in asset prices.
Main features of EuroDollar futures in comparison with other exchange contracts:
- The objects of transactions are goods, the value of which is difficult to predict in the foreseeable future.
- The price and delivery time of goods are agreed; the basic parameters of the transaction (marking, packaging, delivery terms, margin, etc.) are standard for each trading floor.
- Transactions are usually insured, which guarantees the parties confidence in the mutual fulfillment of obligations.
- Risks of using Eur futures are close to zero, since the parties tend to start an exchange game in advance to bring the value of the asset as close as possible to the one described in the contract.
- Euro future forecasts have increased liquidity due to the clear and unambiguous conditions of the transaction, known to both parties to the contract.
In currency futures trading one can distinguish between two notional directions:
- contracts with the settlement currency in US dollars (for example, GBP/USD, CNY/USD, Eur/USD);
- transactions based on cross-rates of other currencies.
Depending on what happens during the transaction – an exchange of money or transfer of ownership of goods – futures can be classified according to this feature into those concluded between the lender and the investor or between the exporter and the importer.
However, the most convenient, and therefore the most common is the division of contracts by the essence of the transaction. Here we distinguish:
Deliverable futures, in which the obligatory sale of goods at a fixed price is assumed.
Settlement futures, where specific dates and amounts of payments for the asset are fixed.
The third party to the transaction is always the exchange or the clearing house, which is the guarantor of adherence to and timely execution of the contract.
Euro futures quotes: Hedging
Hedging at Euro futures quotes is a strategy for minimizing the risks of transactions. If a trader wants to fix a profit, all he has to do is to buy a corresponding contract for the desired amount.
Speculation on EuroDollar futures
There is nothing wrong with the term speculation: in fact, it means a strategy of making a profit by playing on the differences of financial derivatives. As currency futures are in fact derivatives, whatever specific terms the contract contains, trading that has both positive and negative sides.
The trading strategies used in this market are not much different from the ones traders use in the raw materials and stock markets. Most profitable methods are based on Fibonacci or Gan analysis, standard tech analysis or other strategies.
Advantages of trading EuroDollar futures
When trading currencies correctly, futures can rival other popular underlying assets regarding profitability. Experienced traders who made this discovery long ago always keep one or two dozen contracts of different maturities in stock. Such a methodology allows one to protect oneself from constant market fluctuations and compensate for losses on one deal with significant profits on Euro futures.