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If the do-nothing approach isn’t for you, and currency trading calls to you like a siren song, Fisher Investments believes you should know something about the vehicles used to trade currencies. These instruments can be complicated and risky because they can involve a lot of leverage. Fisher Investments recommends you get to know the ins and outs of these products in great detail before trading them. But as an initial edification, Chapter 8 of Own the World gives you some brief descriptions.
Currency Futures
Currency futures are contracts allowing you to exchange one currency for another on a specified date at a specified exchange rate. Commodities futures are usually settled via delivery of the underlying commodity. If you buy frozen concentrated orange juice futures, you’d better have a big freezer ready unless you plan on selling the contract before the delivery date. Fortunately, most financial futures, such as those on stocks and currencies, settle with cash. When you buy a currency future, you lock in an exchange rate for the period of the contract. If the exchange rate moves in your favor, the value of your contract goes up. If the exchange rate moves against you, the value of your future drops.
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