An African Currency Futures Contract (CF) is an agreement that gives the investor the right to buy or sell an underlying African currency at a fixed exchange rate at a specified date in the future. One party to the agreement agrees to buy (longs) the Future at a specified exchange rate and the other agrees to sell (shorts) it at the expiry date. The underlying instrument of a CF is the rate of exchange between one unit of African currency and the South African rand.
Investors, importers, exporters and travellers can use CFs to hedge themselves against movements in the exchange rate. Speculators use CFs to make a profit on short-term movements in prices. Arbitrageurs use them to profit from the price differentials of similar products in different markets. Some investors trade CFs to enhance the performance of a portfolio of assets over the long term.