RetroRomper wrote: Wed Jul 01, 2020 11:21 pm
The emails you mentioned sound like they're about two steps away from a FORAX scam.
I thought you had discovered something new. What you were referring to is FOREX, short for "FOReign EXchange."
The idea is, let's say your company is going to sell 50,000 tons of #55 white flour to a bakery in Paris. The payment is guaranteed no later than 60 days after delivery by irrevocable letter of credit issued by BNP Paribas, France's largest bank, which is worth about US$2 trillion, so your company will be paid in about 60 days (the baker has to sell those bagels to pay you back, but the bank guarantees payment). They'll pay the equivalent of $2 a pound, or €1.77. That's $200 million, or €177,000,000.
Well, you can't pay your employees or suppliers in Euros, so you purchase a FOREX contract to sell €177,000,000 for dollars in 60 days. This is a guarantee that you will deliver Euros, you have to deliver the contracted amount, if you don't have them when the contract comes due you have to buy a spot option or spot contract ("spot" means "immediate delivery") to purchase them. That's about 2,000 FOREX contracts. Since you will receive euros, the contract will guarantee you will sell €177,000,000 for $200,000,000. Now if the value of euros goes up near the end of the contract, you buy a spot contract or option for the reverse and cash out at a profit. If the value of euros goes down, you let the contract complete and take what you were promised, $200,000,000. It's a form of insurance against currency fluctuation. 2,000 contracts will cost about $25,000 in fees, but if in the 60 days the price of the Euro drops by a mere €0.01, so that US$2=€1.78, you've lost about a million bucks,
unless you're protected with a FOREX contract or option. So you could conceivably make a profit, but this way your maximum loss is the fees to book the contract.
What most people would do is buy options, where you purchase the right - buy not the obligation - either to buy or to sell a particular currency a a future date. If you guess right, you by a spot contract or option for the reverse, then exercise both and cash out. If you guessed wrong, you let the option expire worthless.
With a futures contract, you're on the hook if the price goes the wrong way, like you're selling Euros because you think they're going to fall. If their value goes up, and you don't have them, you've got to buy a spot contract for delivery and pay the difference. But if you have them, and their value goes up, you happily buy a spot contract to cover yours and collect the difference as extra profit.