Exchange Rates contract delivery at maturity

September 1st, 2015, 08:17 PM

Hi
Please bear with me as I'm new to futures. I have plenty of questions but this one keeps me pulling my hair.
I'm more an hedger than a trader. I need to hedge payments in EUR from 1 month to up to 1 year ahead. I understand about the "mechanics" of buying a futures contract and how to offset if I want to exit before maturity. However what if I want the actual currency delivered to me? What happens at that time? Will I get a cash settlement equivalent in USD? It gets confusing since here in the US it is impossible to open an account in other currency other than USD. In case the EUR can be delivered, where do they send it? What is the difference between a delivered contract like EURUSD compared to the Brazilian Real futures that is non deliverable? If I can't take delivery isn't there any differences?

Thank You so much.

Courvoisier

September 3rd, 2015, 10:05 AM

Even though you can go to delivery on many futures contracts you rarely do. In the energies for example, the exchange requirements for delivery are so erroneous (eg post full value of product prior to delivery) that even oif you do go off the board long or short, once you are paired with your physical counterparty most parties agree ADP ("Alternative Delivery Process") the position into a bilateral deal.

I don't know what size currency positions you are talking about but brokers like Interactive Brokers will allow you to have currency positions in the millions and they have extremely tight execution spreads (not sure their interest rates are very end user friendly though). May be something to consider.

Exchange Rates contract delivery at maturity

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Exchange Rates contract delivery at maturity