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.
Who is this for
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.
- The African currencies will also provide the market participants with the ability to get exposure on the JSE to the exchange rate between the US Dollar and the Zambian, Kenyan and Nigerian currencies through trading synthetic cross currencies.
- For example, investors can get exposure to the exchange rate between the US Dollar and the Kenyan Shilling by trading both against the Rand
- To promote cross-currency trading the JSE will only charge trading fees on one of the foreign trade logs and not both.
- Provides protection against exchange rate fluctuations in investment portfolios.
- Allows the holder to fix prices for import and export purposes.
- Individual investors can trade over and above their foreign allocation.
- Currency contracts traded on a regulated exchange eliminate counterparty risk.
- Contracts are cash settled in Rands and no physical delivery of the foreign currency takes place.
- No limits apply to individuals, foreigners or corporate entities.
- South African pension funds, collective investment schemes, financial services providers and insurers are subject to their foreign portfolio allowances.
- For all the details relating to qualifying factors, please speak to your broker.