FX Spot Markets vs. Currency Futures

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There are many ways in which one may trade FX or currencies. Two of the most popular outlets include the spot FX markets and FX futures markets as offered by CME Group. This report provides a quick look at the similarities and distinctions between these two markets.

Spot FX Transactions

A spot or outright currency transaction is simply the exchange of one currency for another currency, at the current or spot rate. We often speak of “currency pairs” or the exchange rate between one currency and another, e.g., Euros (EUR) vs. U.S. dollars (USD) or Mexican pesos (MXN) vs. U.S. dollars or British pounds (GBP) vs. Swiss francs (CHF).

Spot FX transaction may be concluded immediately in a variety of retail focused markets, or on a commercial scale through so-called interbank markets. Sometimes these transactions are conducted via telephone, or increasingly via electronic trading systems.

Typically a spot FX transaction is concluded through a payment or settlement process two (2) business days after the transaction is concluded – although practices may vary from one trading venue to the next and in the context of particular currency pairs.

E.g., it is frequent practice to settle transactions between the Canadian dollar (CAD) and U.S. dollar (USD) one (1) business day after the transaction is concluded.

Quotes may be in either “American terms” or “European terms.”

E.g., consider the Swiss franc vs. U.S. dollar currency pairing. Conventionally, one quotes this pair in spot markets in European terms, or in terms of CHF per one (1) USD. The pair was priced at 0.8955 CHF per 1 USD as of May 30, 2014. The American terms quote is

American Terms Quote = —————————-
European Terms Quote


Thus, one may quote in American terms, or USD per CHF, as 1.1167 USD per 1 CHF.

1.1167 USD per 1 CHF = —————————-
0.8955 CHF per 1 USD

Standard spot market practice is to quote most currencies in European terms. There are some exceptions to this rule including the EUR, the GBP and British Commonwealth currencies, such as the AUD and NZD, which are generally quoted in American terms.

Select Spot Exchange Rates

(as of May 30, 2014)

Currency CODE In USD per USD
Argentina Peso ARS 0.1238 8.0787
Brazil Real BRL 0.4462 2.2410
Canada Dollar CAD 0.9220 1.0846
Chile Peso CLP 0.001821 549.10
Colombia Peso COP 0.0005271 1897.00
US Dollar USD 1.000 1.0000
Mexico Peso MXN 0.0778 12.8576
Australian Dollar AUD 0.9311 1.0740
China Yuan CNY 0.1600 6.2486
Hong Kong Dollar HKD 0.1290 7.7529
India Rupee INR 0.01686 59.30895
Indonesia Rupiah IDR 0.0000857 11675
Japan Yen JPY 0.00982 101.78
Malaysia Ringit MYR 3.112 3.2135
New Zealand Dollar NZF 0.8498 1.1768
Singapore Dollar SGD 0.7973 1.2542
South Korean Won KRW 0.0009794 1021.0
Taiwan Dollar TWD 0.3328 30.047
Thailand Baht THB 0.03044 32.848
Denmark Krone DKK 0.1826 5.4750
Euro EUR 1.3632 0.7336
Norway Krone NOK 1.1674 5.9748
Russia Ruble RUB 0.02866 34.895
Sweden Krona SEK 0.1495 6.6886
Switzerland Franc CHF 1.1167 0.8955
Turkey Lira TRY 0.4768 2.0972
UK Pound GBP 1.6756 0.5968
Israel Shekel ILS 0.2878 3.4742
Saudi Arabia Riyal SAR 0.2666 3.7506
South Africa Rand ZAR 0.0946 10.5729

Source: Wall Street Journal, May 30, 2014

Most currencies are quoted to the 4th place past the decimal or 0.0001, also known as a “pip” or a “tick.” However, practices may vary with respect to currencies whose values are very small or very large in relative terms.

It is also possible to trade “cross-rates” or transactions which do not involve U.S. dollars. For example, one may trade the GBP/EUR exchange rate.

Select Spot Cross Rates

(as of May 30, 2014)

JPY 101.7843 138.7536 170.5547 113.6654 7.9163
MXN 12.8576 17.5276 21.5448 14.3585 0.1263
CHF 0.8955 1.2207 1.5005 0.0696 0.0088
GBP 0.5968 0.8135 0.6664 0.0464 0.0059
EUR 0.7336 1.2292 0.8192 0.0571 0.0072
USD 1.3632 1.6756 1.1167 0.0778 0.0098

Source: Wall Stree Journal, May 30, 2014

FX Futures Fundamentals

Currency futures were developed in 1972 by Chicago Mercantile Exchange Chairman Leo Melamed. This development was a direct response to the breakdown of the Bretton Woods Accord, which pegged global currencies to the U.S. dollar, and represented the first financial futures market.

Over the years, many currency contracts have been added and the listings now include contracts on Euros vs. U.S. dollars (EUR/USD), Japanese yen vs. U.S. dollars (JPY/USD), British pounds vs. U.S. dollars (GBP/USD), Swiss francs vs. USD (CHF/USD), Canadian dollars vs. USD (CDN/USD), Australian dollars vs. USD (AUD/USD), Mexican pesos vs. USD (MXN/USD), New Zealand dollars vs. USD (NZD/USD), Russian ruble vs. USD (RUB/USD), South African rand vs. USD (ZAR/USD), Brazilian real vs. USD (BRL/USD), and many others.

More recent additions to the line-up include Chinese renminbi vs. USD (RMB/USD) and Korean won vs. USD (KRW/USD). Further, CME lists smaller sized or “E-mini” versions of several of our more popular FX futures contracts. The aforementioned contracts are generally quoted vs., and denominated in, the U.S. dollar.

Major cross-rate contracts included EUR/GBP, EUR/JPY, EUR/CHF, GBP/CHF, GBP/JPY and many others. CME Group further offers options on many of these currency futures contracts.

Mechanics of FX Futures

Futures are traded on a regulated futures exchange subject to standardized terms and conditions. They are distinguished from spot or other “over-the-counter” FX transactions by their standardization, which concentrates liquidity in a relatively small number of items.

FX futures are traded on the CME Globex® electronic trading platform and on the floor of the Exchange in an open outcry environment, although the predominant mode of trade is electronic.

These contracts generally call for delivery of a specified quantity of currency, or a cash settlement, during the months of March, June, September and December (the “March quarterly cycle”). 1 Thus, one may buy or sell 12,500,000 JPY for delivery on the 3rd Wednesday of June; or, 125,000 Euros for delivery on the 3rd Wednesday of September.

Traders who “go long” or buy JPY/USD futures are committed to take or accept delivery of 12,500,000 JPY while, traders who “go short” or sell EUR/USD futures are committed to make delivery of 125,000 Euros. The short making delivery is compensated by the buyer accepting delivery by an amount equal to the futures settlement price quoted in USD on the last day of trading.

American vs. European Terms Quotes

(as of May 30, 2014)

CME Quotes American Terms European Terms
USD vs. EUR 1.3632 0.7336
USD vs. JPY 101.78 0.00982
USD vs. GBP 1.6756 0.5968
USD vs. CHF 1.1167 0.8955
USD vs. MXN 0.0778 12.8576

Source: Wall Street Journal

CME Group FX futures are generally quoted in “American” terms, i.e., in terms of dollars per foreign unit. This is at variance from the typical interbank practice of quoting foreign exchange transactions in terms of foreign unit per USD. 2

1Our appendix includes contract specifications for several of the most popularly traded CME Group currency futures contracts.

2 Some CME Group currency futures are quoted in European terms. For example, we list a South African rand (“ZAR”) contract quoted in rand per USD. Further, many currencies listed on the CME Europe platform, launched in May 2014, are quoted in European terms as well. But most of our most popularly traded FX futures are quoted in American terms.

The information herein has been compiled by CME Group for general informational and educational purposes only and does not constitute trading advice or the solicitation of purchases or sale of any futures, options or swaps. All examples discussed are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. The opinions expressed herein are the opinions of the individual authors and may not reflect the opinion of CME Group or its affiliates. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT and NYMEX rules. Current rules should be consulted in all cases concerning contract specifications.

Although every attempt has been made to ensure the accuracy of the information herein, CME Group and its affiliates assume no responsibility for any errors or omissions. All data is sourced by CME Group unless otherwise stated.

CME Group is a trademark of CME Group Inc. The Globe Logo, CME, CME Direct and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX and ClearPort are trademarks of New York Mercantile Exchange, Inc. All other trademarks are the property of their respective owners.

Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.

If you have questions send us a message or schedule an online review .

Peter Knight Advisor


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