Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

What is a foreign exchange derivative?

Derivatives like forward contracts, futures contracts and options let you bet on the future value of currency.

A term you’ll hear in forex is the foreign exchange derivative. While it sounds scary, it’s not nearly as complicated as you may think — it’s just a contract to buy or sell a currency at a specific time in the future.

There are 3 kinds of foreign exchange derivatives:

  • Forward contracts
  • Futures contracts
  • Options

Forward contracts

Forward contracts are typically used by investors who want to limit their risk to exchange rate volatility. For example, if you’ve sold goods to someone and agreed to get paid 6 months in the future, you might choose to enter a forward contract. You don’t want to lose your shirt if the exchange rate moves against you — you just want the money you’re owed.

Futures contracts

Futures contracts are typically used by speculators who are looking for large returns on their investments. These speculators try to make money based on the strengthening or weakening of a currency. Of course, the prospect of bigger profits is accompanied by greater risk.


Forex options give you the option (not obligation) to buy or sell a currency at a certain price. You can do so at any point up until the option expires.

  • If you have the right to buy a currency, you have a call option.
  • If you have the right to sell a currency, you have a put option.

In the world of options, you’ll often hear the terms long position and short position.

  • If you buy an option, you’re taking a long position. You’re hoping a currency will go up in value so you can buy it at a price that’s under its current value.
  • If you’re the one writing the option (for example, you’re selling it to someone), you’re taking the short position. You’re hoping a currency goes down in value so that the other party won’t exercise their option.

Compare forex trading platforms

1 - 1 of 1
Name Product Minimum Opening Deposit Number of currency pairs Margin Requirements (MMR) Platforms
Varies depending on currency (1.50-28.00%) Desktop, Web Trading, Mobile Trading, MetaTrader 4
CFDs are leveraged products which involves greater risk than using cash resources only. You could lose all or more of your initial investment. Trade 80+ currency pairs and 220+ CFDs in equities, commodities and indices on

Compare up to 4 providers

Forex trading

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

More on investing

Masterworks review

Masterworks review

An investment platform that enables users to buy and sell stocks in fine art securities.

Read more…
10 ways to invest for social justice

10 ways to invest for social justice

Put your money where your mouth is by rethinking how you invest to support BIPOC, LGBTQ+ and other marginalized communities.

Read more…
Investing in your 40s: 8 ways to prepare for retirement

Investing in your 40s: 8 ways to prepare for retirement

How to invest for retirement: 8 ways to safeguard your portfolio.

Read more…
How to invest $1 million

How to invest $1 million

Here are the top 5 ways you should invest $1 million.

Read more…
6 places to find investment advice

6 places to find investment advice

Tips for beginning investors and high net-worth individuals alike.

Read more…
Retirement planning

Retirement planning

Get actionable tips on how to prepare for your ideal retirement.

Read more…

More guides on Finder

Ask an Expert

You must be logged in to post a comment.

Go to site