Description of Currency Futures Also known as Foreign-Exchange (FX) Futures, are standardized financial contracts traded on exchanges and through electronic networks. The Chicago Mercantile Exchange (CME) the electronic GLOBEX® system, it is one of the largest futures networks available. Currency futures are quoted in dollars per unit of foreign currency at the Chicago Mercantile Exchange. Mastertrader.com will allow trading in these products between 7:30am EST to 4:15pm EST. To calculate the profit or loss on a trade, you would multiply the change in price (in ticks) by the value of a single tick. The value of a tick is set by the exchange and represents the minimum price fluctuation for a particular contract. The minimum fluctuation (tick) of the Swiss Franc contract is .0001 and the value of that tick is $12.50. For example, if the price moved from .8150 to .8160 or 10 ticks the resulting gain would be $125.00 (10 x 12.50). Margin Due to the fact that these are highly leveraged instruments, a thorough understanding of margin is a crucial concept when trading currency futures. During each trading day, a currency futures trading account is marked-to-the–market for any losses or gains. These losses or gains are then immediately debited or credited from/to the account. As described on the CMEs website: ’ Performance bonds in the futures industry, formerly called the "margin," are considered "good faith" deposits that guarantee a trader's position holdings amid market swings. In addition to the initial performance bond deposit, traders are committed to making good on any change in the value of any futures contract they hold. Traders can use this to leverage a position larger than their initial deposit amount.’ If a Mastertrader.com customer with a $12,000 account balance wants to purchase as many Mexican Peso contracts as their balance will allow, the customer would take their account balance and divide it by the initial margin requirement of $1,875. Rounding down, this would result in 6 contracts ($12,000/$1,875) leaving $750 in the account. Using a trading example, the customer purchase 6 Mexican Peso contracts at .086375. At the close of trading for the day, the value of the contract closes at .086275 resulting in a loss of 4 ticks (.086375 - .086275 = .000100 / .000025 = 4 ticks). The customer will have their account debited at the end of the day for $300 (4 ticks * $12.50 * 6 contracts). The account will finish the day with 6 Mexican Peso contracts and $450 ($750 - $300 loss). To view the most current margin rates for currencies, please click here. Unless you currently hold the underlying commodity, be sure to look at the ‘spec’ (or speculator) performance bond figure. Expiration and Delivery of Currency Futures Contracts Since currency futures contracts are delivered in the respective foreign country’s currency upon expiration, our clearing firm Penson Financial, will require that the initial margin be raised to 100% roughly one week prior to expiration. Roll Dates Roll
Dates are days when traders switch their focus from a contract
that is due to expire to the next available contract month. The
new contract then becomes the ‘lead’ or most actively
traded contract. After this date the liquidity in the contract
that is due to expire may drop off quite dramatically. For this
reason, anyone wishing to initiate a new position should do so
in the new contract month. People with existing positions in
the expiring contract month should have already rolled their
position into the new lead contract or prepare to liquidate their
position. For example, if you are long a March 2003 Swiss Franc
contract, on March 10, 2003 you may want to sell that contract
and have bought a June 2003 contract to “roll” your
position to the next contract month (June 2003) or plan to sell
your remaining March contact and exit that position. For more
information
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