Currency Hedge: Forward or Futures? better, forward, currency, contract

LBriscoe

So it is better to hedge currency risk with a futures contract rather than a forward contract since they are "easier to use for frequent adjustments"?


Reading 40.

Colum

dhwit Wrote:
-------------------------------------------------------
> In general I believe fwds are preferred when
> hedging currencies. Can't remember where I read
> it (I think a CFA sample exam), currency forwards
> are more liquid than currency futures.


This

NO EXCUSES

zwjy

really?
if anyone has a page #, that'd be great- obviously need a read through this if this is true.

strikethree

page 302 - reading 40

but the answer is not there... so you have to figure it out...

as bpdulog and dhwit said : it seems like forwards are preferable since they are more liquid.

mar350

markCFAIL Wrote:
-------------------------------------------------------
> They are only more liquid for currency derivs,
> right? All others i thought futures were more
> liquid due to being standardized and exchange
> traded.

that is my understanding...futures are more liquid than forwards EXCEPT for currency.

canadiananalyst

Paraguay Wrote:
-------------------------------------------------------
> Forwards are more liquid.
>
> Futures are easier to change quickly according to
> Schweser. Never found that word for word in the
> book.
>
> Made absolutely no sense but at this point I think
> everyone knows the differences between futures and
> forwards so most questions should be a slam dunk.


Are you *sure* forwards are more liquid outside of currency markets which require highly customizable contracts?

jmh530

markCFAIL Wrote:
-------------------------------------------------------
> Paraguay Wrote:
> --------------------------------------------------
> -----
> > Forwards are more liquid.
> >
> > Futures are easier to change quickly according
> to
> > Schweser. Never found that word for word in
> the
> > book.
> >
> > Made absolutely no sense but at this point I
> think


> > everyone knows the differences between futures
> and
> > forwards so most questions should be a slam
> dunk.
>
>
> Are you *sure* forwards are more liquid outside of
> currency markets which require highly customizable
> contracts?


I was just speaking of currencies. This thread was related to currencies. Equity and bond have much greater liquidity in futures.



Edited 1 time(s). Last edit at Friday, May 27, 2011 at 08:07PM by Paraguay.

infinitybenzo

currency forward has greater liquidity
but futures are based on small size , more fixed maturity choice , so it is better to rebalance by currency futures but it is better to use forward to hedge currency risk



Edited 1 time(s). Last edit at Friday, May 27, 2011 at 08:16PM by goodman2011.

nannan66

Generally I think currency forwards are preferable for hedgers (corporations + international investment managers), and futures are preferable for dealers to hedge their positions as counterparties in the forward markets. My understanding anyway.

cityboy

Let's check out what the curriculum said.

"Either futures or forward currency contracts may be used to hedge a portfolio. They differ in several ways. Futures are exchange traded contracts while forwards are over-the-counter (OTC) contracts. Currency forwards are sometimes referred to as currency swaps. Portfolio managers tend to primarily use forward contracts in currency hedging. But forward and futures contracts allow a man- ager to take the same economic position. Therefore, in this reading, the generic term futures will denote both futures and forward (or swap) contracts."

(p. 292)