Table 3.1 is a list of currencies traded through IMM at the Chicago Mercantile Exchange and their contract specifications.
Size represents one contract requirement though some brokers offer minicontracts, usually one-tenth the size of the standard contract. Months identify the month of contract delivery. The tick symbols H, M, U, Z are abbreviations for March, June, September, and December, respectively. Hours indicate the local trading hours in Chicago. The minimum fluctuation represents the smallest monetary unit that is registered as one pip in price movement at the exchange and is usually one ten-thousandth of the base currency.
Currencies Trading Volume
Figure 3.1, FX Futures and Options, summarizes the growth of currency futures trading over five years. Keep in mind that spot trading has also increased in those years.
U.S. Dollar Index
The U.S. Dollar Index (ticker symbol = DX) is an openly traded futures contract
offered by the New York Board of Trade. It is computed using a tradeweighted geometric average of six currencies. See Table 3.2. IMM currency futures traders monitor the U.S. Dollar Index to gauge the dollar’s overall performance in world currency markets. If the Dollar Index is trending lower, then it is likely that a major currency that is a component of the
FIGURE 3.1 FX Futures and Options (Jan 2003–Sep 2008) Source: CME Group, www.cmegroup.com.
Dollar Index is trading higher. When a currency trader takes a quick glance at
the price of the U.S. Dollar Index, it gives the trader a good feel for what is going on in the FOREX market worldwide. For traders who are interested in more details on commodity futures, I recommend Todd Lofton’s paperbound book, Getting Started in Futures (John Wiley & Sons, 2007).
TABLE 3.2 U.S. Dollar Index
Volume and Open Interest
Volume and open interest statistics are not available on the spot market as there is no centralized clearinghouse or exchange to collect the data. It is available for currency futures.
Volume is the total number of transactions over a fixed period of time, usually one trading session. Open Interest is the total number of outstanding futures contracts. If a new long buys from a new short, open interest increases by one. If a new long or new short buys or sells to an old short or old long, open interest does not change. If an old long offsets to an old short, open interest decreases by one. Many technical traders in the futures market consider volume and open interest to be useful forecasting information.
Open Interest is further dissected for analysis in some futures markets between commercial interests (hedgers), large speculators, and small speculators as seen on the web site www.timingcharts.com. A government report issues this information as the Commitment of Traders (COT).
Where to Trade
The primary exchange for futures, FOREX is the International Monetary Market division of the CME Group (www.cmegroup.com). ICE FX (www.theice.com), formerly the New York Board of Trade, makes a market in currency futures.
FOREX Futures
Turnabout is fair play. Some retail spot FOREX brokers now offer trading in silver (XAGUSD) and gold (XAUUSD). TIP: Gold and silver traders with a bent for high risk may find higher leverage available with an overseas retail spot FOREX broker.
Summary
Almost all retail traders prefer spot FOREX. Futures FOREX has its advantages: (1) a centralized exchange, (2) stronger regulation, and (3) availability of daily volume and open interest statistics.
Size represents one contract requirement though some brokers offer minicontracts, usually one-tenth the size of the standard contract. Months identify the month of contract delivery. The tick symbols H, M, U, Z are abbreviations for March, June, September, and December, respectively. Hours indicate the local trading hours in Chicago. The minimum fluctuation represents the smallest monetary unit that is registered as one pip in price movement at the exchange and is usually one ten-thousandth of the base currency.
Currencies Trading Volume
Figure 3.1, FX Futures and Options, summarizes the growth of currency futures trading over five years. Keep in mind that spot trading has also increased in those years.
U.S. Dollar Index
The U.S. Dollar Index (ticker symbol = DX) is an openly traded futures contract
offered by the New York Board of Trade. It is computed using a tradeweighted geometric average of six currencies. See Table 3.2. IMM currency futures traders monitor the U.S. Dollar Index to gauge the dollar’s overall performance in world currency markets. If the Dollar Index is trending lower, then it is likely that a major currency that is a component of the
FIGURE 3.1 FX Futures and Options (Jan 2003–Sep 2008) Source: CME Group, www.cmegroup.com.
Dollar Index is trading higher. When a currency trader takes a quick glance at
the price of the U.S. Dollar Index, it gives the trader a good feel for what is going on in the FOREX market worldwide. For traders who are interested in more details on commodity futures, I recommend Todd Lofton’s paperbound book, Getting Started in Futures (John Wiley & Sons, 2007).
TABLE 3.2 U.S. Dollar Index
Volume and Open Interest
Volume and open interest statistics are not available on the spot market as there is no centralized clearinghouse or exchange to collect the data. It is available for currency futures.
Volume is the total number of transactions over a fixed period of time, usually one trading session. Open Interest is the total number of outstanding futures contracts. If a new long buys from a new short, open interest increases by one. If a new long or new short buys or sells to an old short or old long, open interest does not change. If an old long offsets to an old short, open interest decreases by one. Many technical traders in the futures market consider volume and open interest to be useful forecasting information.
Open Interest is further dissected for analysis in some futures markets between commercial interests (hedgers), large speculators, and small speculators as seen on the web site www.timingcharts.com. A government report issues this information as the Commitment of Traders (COT).
Where to Trade
The primary exchange for futures, FOREX is the International Monetary Market division of the CME Group (www.cmegroup.com). ICE FX (www.theice.com), formerly the New York Board of Trade, makes a market in currency futures.
FOREX Futures
Turnabout is fair play. Some retail spot FOREX brokers now offer trading in silver (XAGUSD) and gold (XAUUSD). TIP: Gold and silver traders with a bent for high risk may find higher leverage available with an overseas retail spot FOREX broker.
Summary
Almost all retail traders prefer spot FOREX. Futures FOREX has its advantages: (1) a centralized exchange, (2) stronger regulation, and (3) availability of daily volume and open interest statistics.
