What is a foreign exchange derivative? | finder.com
foreign exchange derivative money transfers

What is a foreign exchange derivative?

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

Learn about the three types of foreign exchange derivatives.

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 three 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 six 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.

Learn more about forward contracts.

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.

Learn how futures contracts differ from forward contracts in a few important respects.

Options

An option gives you the option to buy or sell a currency at a certain price, and 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.

Read more about foreign exchange options.

Compare providers that can help you set up foreign exchange derivative

I want to send

to

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
$0 3 - 5 days - - Save your business time and money with XE. Go to site Show details
$1 3 - 5 days USD 1.00 20.05 MXN 100,232 Enjoy high maximum transfers into more than 20 currencies while saving up to 90% over local banks. Go to site Show details
$2,000 3 - 5 days USD 0.00 19.982 MXN 99,911 No-limit transfers with competitive exchange rates for 100+ currencies. Go to site Show details
Same day USD 0.00 19.892 MXN 99,460 Increase business efficiency with zero transaction fees and same-day transfers. Go to site Show details

Compare up to 4 providers

I want to send

to

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
USD 0 3 - 5 days USD 0.00 19.882 MXN 99,409 Transfer up to $500,000 with no minimums and no fees. Go to site Show details
USD 1,000 1 day USD 0.00 19.872 MXN 99,359 No maximum limit, no fees and competitive exchange rates for 100+ currencies. Go to site Show details
USD 1 1 - 2 days USD 7.00 19.892 MXN
99,320
Enjoy high maximum transfers into more than 20 currencies while saving up to 90% over local banks. Go to site Show details
USD 1 Within an hour USD 3.99 19.852 MXN 99,180 Use promo code FINDER to send your first transfer with no fee.
Send to 110+ countries for bank-to-bank deposit, cash pickup or mobile top-up.
Go to site Show details
1 - 2 days USD 0.00 19.832 MXN 99,159 Get live quotes on exchange rates and take advantage of no transaction fees with no limits on transfers. Go to site Show details

Compare up to 4 providers

Frequently asked questions

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site