Forex futures are standardized futures contracts to buy or sell currency at a set date, time, and contract size. These contracts are traded at one of the numerous futures exchanges around the world. Unlike their forwards counter-parts, futures contracts are publicly traded, non-customizable (standardized in their specified contract size and settlement procedures) and guaranteed against credit losses by an intermediary known as a clearing house. (Related Derivatives: Futures vs. Forwards) The clearing house provides this guarantee through a process in which gains and losses accrued on a daily basis are converted into actual cash losses and credited or debited to the account holder. This process, known as mark-to-market, uses the average of the final few trades of the day to calculate a settlement price. This settlement price is then used to determine whether a gain or loss has been incurred in a futures account. In the time span between the previous day’s settlement and the current’s, the gains and losses are based on the last settlement value.
Futures clearing houses require a deposit from participants known as a margin. Unlike margin in the stock market, which is a loan from a broker to the client based on the value of their current portfolio, margin in the futures sense refers to the initial amount of money deposited to meet a minimum requirement. There is no borrowing involved, and this initial margin acts as a form of good-faith to ensure both parties involved in a trade will fulfill their side of the obligation. Furthermore, the futures initial margin requirement is typically lower than the margin required in a stock market. In fact, futures margins tend to be less than 10 percent or so of the futures price. Should an account take on losses after daily mark-to-market, the holders of futures positions must ensure that they maintain their margin levels above a predesignated amount known as the maintenance margin. If accrued losses lower the balance of the account to below the maintenance margin requirement, the trader will be given a margin call (no relation to the movie) and must deposit the funds to bring the margin back up to the initial amount. An example of margin requirements for each type of contract can be found on the Chicago Mercantile Exchange, or CME's website here (more on the CME, below).
Forex futures are traded at exchanges around the world, with the most popular being the Chicago Mercantile Exchange (CME) group, which features the highest volume of outstanding futures contracts. Forex, much like most futures contracts, can be traded in an open out-cry system via live traders on a pit floor or entirely through electronic means with a computer and access to the Internet. Currently, open-outcry is being phased out in Europe and replaced with electronic trading. As mentioned earlier, in terms of the sheer number of derivatives contracts traded, the CME group leads the pack with 3.16 billion contracts in total for 2013. The Intercontinental Exchange and Eurex follow behind at 2nd and 3rd places, respectively, at 2807.97 and 2190.55 billion contracts traded. The bulk of the FX futures contracts are traded through the CME group and its intermediaries.