Tag: Asset Investment Management

Hedging FX Risk

Hedging with FX futures

Given the interconnectedness of today’s global economy, it is hard to imagine a medium-to-large size company that is not exposed to currency risk. Such risk can result from importing parts or components or from exporting finished products to foreign markets.

FX risk is not just for manufacturers, asset managers with large positions in foreign securities not only have exposure to the underlying asset value variability, but also face exposure to the currency in which that asset is priced.

In light of these considerations, risk managers are well aware of currency fluctuation risk to their business. One way to manage currency risk is with a currency overlay program.

The objective of a currency overlay program is to limit losses and maximize gains that arise from currency rate fluctuations. Strategies can be passive, active, or a combination of both.

FX Hedge Example

Consider a Brazilian asset manager who decides to allocate R$40 million into U.S. equities. By investing in U.S. equities, he has two risk exposures:

U.S. equity price risk exposure

U.S. dollar versus Brazilian real currency exposure

Currency Risk Exposure

For this example, we focus exclusively on the currency risk exposure. In order to invest in U.S. equities, the Brazilian asset manager must first convert his cash from Brazilian reais to U.S. dollars.

Starting position R$40,000,000

Brazilian reais to US dollars exchange rate = 4.00

This is 4 Brazilian real for each U.S. dollar

R$40,000,000 ÷ 4 = $10,000,00

The asset manager can now invest the $10 million into U.S. equities.

What is his currency risk?

By converting from Brazilian real to a U.S. dollar, he is now exposed to a weaker U.S. dollar. If the dollar goes down in value versus the Brazilian real, when he converts back to his domestic currency, he will receive fewer reais, reducing the return on his investment.

Creating the Currency Hedge

Brazilian real futures are quoted and traded in American terms. When the terms currency weakens, in this case the U.S. dollar, then the futures price increases. Therefore, to hedge a weaker dollar exposure our manager would be a buyer of the BRL/USD futures (contract symbol 6L).

How many contracts would he buy?

Hedge ratio = “value at risk” ÷ “notional contract value”

Hedge ratio = R$40,000,000 ÷ (BRL/USD contract notional = R$100,000)

Hedge ratio = 40,000,000 ÷ 100,000

Hedge ratio = 400 (6L) contracts

BRL/USD futures contract trade at the inverse price to the spot convention. The spot exchange rate was 4.0000, therefore the futures contract price would be 0.25000.

Spot USD BRL exchange rate = 4.0000

BRL/USD futures contract = 1 ÷ 4.0000 (or 0.25000)

This means our asset manager would buy 400 BRL/USD futures at a price of 0.25000.

Scenario: U.S. Dollar Weakens

New spot exchange rate = 3.5000

BRL/USD Futures price = 1 ÷ 3.5000 (0.28570)

Purchase price for BRL/USD contract = 0.25000

Price movement = 0.28570 – 0.25000 (3570 points)

If we multiply this increase by the 400 contracts we get a profit of $1,428,000.

Converting $1,428,000 amount back into Brazilian reais at the 3.5 exchange rate results in a gain of R$4,998,000 from the hedge.

If you subtract the gains from the hedge position from the loss resulting from the currency rate change results, we end up with a 2,000 reais loss for the asset manager.

Loss from exchange rate change = (R$5,000,000)

Gains from futures contract = R$4,988,000

Total hedge result = (R$2,000)

This small loss is certainly more acceptable than a R$5 million loss if left unhedged.

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

Regards,
Peter Knight Advisor

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Understanding the FX Delivery & Settlement Process

Understanding FX Settlement and Delivery

All futures contracts have a specified date on which they expire. Prior to expiration, traders have a number of options to either close out or extend their open positions without holding the trade to expiration.

For those traders who want to take their contract to expiration, there are two ways an FX contract can be settled: cash settlement or physical delivery of the currency. For many FX futures, the last trading day is generally the second business day prior to the third Wednesday of the contract month.

We will look at a how settlement happens using the March British pound futures, which expire on the third Wednesday of the contract month. This contract is physically-delivered.

Example

Assume on the Monday preceding expiration, the expiring March contract is trading at 1.2405, and the next deferred contract, which is June, is trading at 1.2395.

The price difference between these two contracts is known as a calendar spread.

The calendar spread level is important, because it is a factor in determining the final price of the expiring contract.

In this example the calendar spread would be 10 ticks, a difference of 0.0010. British pound futures stop trading at 9:16 a.m. Central Time (CT) on that Monday.

In the final 30 seconds of trading, between 9:15:30 and 9:16:00 a.m., CME Clearing calculates the volume-weighted average price, for the deferred contract. We will assume the VWAP for the deferred June contract is 1.2390.

The calendar spread is then added to the VWAP to arrive at the final settlement price of the expiring contract of 1.2400.

Now that we have calculated the final settlement price for a physically-delivered contract, we will look at how the actual delivery works.

In our example the short would deposit the notional value of 62,500 pounds per contract with an approved agent bank. The long position would have 1.2400 times 62,500, or $77,500, per contract deposited in an acceptable delivery bank.

The two banks agree to these terms per CME Group arrangement and cash versus currency are exchanged over the bank wire. All of this is completed by 10:00 a.m. CT on the settlement day, which is the third Wednesday of the contract month, two business days after last trading day.

For cash-settled FX futures, the process is much simpler. The final settlement price is determined by the clearinghouse. Any profit or loss is calculated by taking the difference between the final settlement price and the previous day’s mark-to-market

Summary

Like any other futures contract, a trader with an open position they may decide to offset or roll forward their position to avoid expiration and delivery. However, if they decide to go to expiration, they should understand the final settlement procedures for the specific contract they are trading.

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

Regards,
Peter Knight Advisor

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The Importance of FX Futures Pricing and Basis

Understanding FX Basis

The difference between the futures price and spot price of a currency pair is referred to as the basis.

Basis can be either positive or negative. It will depend on the current relationship between the short-term interest rates of the base and terms currencies being considered.

The base currency is the first currency in a currency pair quotation, and the terms currency is the second half of the quotation.

FX Futures Pricing

The price of an FX futures product is based on the currency pair’s spot rate and a short-term interest differential. The pricing formula is similar to how FX forwards are priced in the OTC market. In the following equation, R is the short-term interest rate of a currency and d is the number of days from trade settlement until expiration.

If the short-term interest rate of the terms currency rate is lower than the short-term interest rate of the base currency, futures should trade at a discount to the spot price of the currency pair. The basis (that is, futures minus spot) would be quoted as a negative number.

This negative number is the result of what is known as positive carry. It is referred to as positive because an investment in the base currency’s short-term interest rate generates more income than the income generated by the terms currency’s short-term interest rate.

Example

Consider Mexican peso/U.S. dollar futures, quoted in American terms as MXN/USD. The Mexican peso resides in the base currency position. Assume it has a short-term interest rate of roughly 4.25% for a term settlement to expiration of 82 days.

The USD resides in the terms position and has an equivalent-dated short-term interest rate of 0.70%.

Notice that the USD rate is lower than the Mexican rate. This implies positive carry, so the futures price should be lower than the spot. Using the inputs provided, along with a spot equivalent rate of 0.05158, results in an implied futures price of 0.05116 versus a quoted mid-market price of 0.05115. Futures are quoted at -43 points under spot due to positive carry.

Shorter time

Going one step further, we will change the time value to expiration from 82 days to 30 days. How does this effect the multiplier?

Using the same calculation, the new multiplier is 0.99705 which is higher than our multiplier at 82 days. This means the futures price, while still lower, will be closer to spot. This is because of the erosion of the time value of money, or time decay.

As a futures contract approaches expiration, the time value of money runs out and futures price converges toward spot.

The 30-day implied futures price comes to 0.05143 versus a spot of 0.05158. When we subtract the futures price from the spot we get a -15 points.

The basis has narrowed from -43 to -15. At expiration, futures and spot will converge to the same level.

Summary

For FX futures, basis is the difference between the futures price and spot price of a currency pairing.

There is a cost of carry consideration for FX futures products. This is a determining factor in whether the futures price trades at a discount or a premium to spot.

If the terms rate is greater than the base rate, futures should trade at a premium to the spot price of the currency. However, when the terms rate is less than the base rate, futures should trade at a discount to spot.

The basis, or difference in futures price versus spot, can be either positive or negative. What is important to remember, is that regardless of whether the basis is positive or negative, the futures price will converge to spot as it approaches expiration. In other words, as time runs out on the futures contract, the interest rate differential has less effect on the futures price and that futures price converges to the spot value.

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

Regards,
Peter Knight Advisor

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Understanding FX Quote Conventions

Identifying Currencies

Ever wonder what it means when you see currency quotations like these?

EUR/USD

Currencies are quoted in relation to another currency. For example, when we refer to the exchange rate of the euro (the currency of the European Union) to the U.S. dollar we quote the relationship, or exchange rate, as EUR/USD.

The first currency in the quotation – in this case the euro – is represented by its three-letter symbol, EUR. This is known as the named or base currency.

The second currency – in this case the U.S. dollar, shown by its three-letter symbol, USD – is known as the terms or quote currency.

Currency Pairs

When trading FX, the trading action is applied to the base, or first, currency in the currency pair. So, if you purchase the EUR/USD at 1.1250, you would receive one unit of the euro (EUR) in exchange for a payment of 1.1250 U.S. dollars (USD).

American and European Terms

Currency pairs versus U.S. dollars tend to be quoted in one of two ways; in either American or European terms.

European terms do not limit or refer to just Europe-based currencies, but to any currency other than the USD. European terms mean the U.S. dollar sits in the base currency location and the other currency occupies the terms position.

For example, the Swiss franc trades in the spot market in European terms. It is quoted in USD/CHF convention. CHF is the three-letter symbol for the Swiss franc.

American terms are currency pairs where the quote convention places the USD in the terms location.

For example, the British pound trades in American terms in the futures market and is shown as GBP/USD. GBP is the three-letter symbol for the British pound.

It’s important for traders to understand that the quote convention for futures may be different than the spot for the currency pairs they wish to trade.

Trading Codes

On futures execution platforms, all currency futures will be listed using a trading code that includes the instrument, month and year.

For example, when trading euro FX futures on CME Globex, the contract code for March 2017 would be 6EH7; 6E is the product code, H is the month code and 7 is the year.

Summary

Traders looking to express an opinion in the FX futures market need to be aware of the quoting convention and the trading code symbols for each currency pair offered by the exchange.

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

Regards,
Peter Knight Advisor

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Futures Options Indices Interest Rates Metals Energy

Currency Educational Videos & Links

1) General Information on Future Contracts and Futures Options

1.1) Futures Educational Videos (60)
1.2) Futures Options Educational Videos (34)

2) Forex Educational Videos

2.01) Basics of the Futures Markets
2.02) Basics of Futures Options
2.03) Fundamentals and FX Futures
2.04) Trading the FX Markets
2.05) Australian Dollar Futures
2.06) British Pound Futures
2.07) Canadian Dollar Futures
2.08) Japanese Yen Futures
2.09) Euro FX Futures
2.10) Introduction to Order Types
2.11) Detailed Description of Order Types With Examples
2.12) Understanding Futures Margin Requirements
2.13) Understanding Moving Averages
2.14) About Bollinger Bands & How to Set Them
2.15) Understanding Support and Resistance
2.16) Defining Trend, Trade Duration & Number of Contracts Traded
2.17) Explaining Call Options (Short and Long)
2.18) Explaining Put Options (Short and Long)
2.19) Option Collars
2.20) Working Examples of Collaring Positions
2.21) What is the European Central Bank?
2.22) Understanding FX Quote Conventions
2.23) FX Futures Pricing and Basis
2.24) Understanding the FX Delivery & Settlement Process
2.25) Hedging FX Risk
2.26) A Look at FX Exchange For Physical (EFP)
2.27) Futures versus forwards traded on the OTC
2.27) FX Spot Markets vs. Currency Futures

If you have any questions, contact me.

Peter Knight
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Disclosure

Trading the FX Markets

Trading the FX Markets

There is a lot of talk about risks in a portfolio and the importance of diversification. What those risks are and what true diversification is can be many different things to many different people. But in today’s portfolio, the traditional 60 percent stocks and 40 percent bonds structure isn’t really true diversification. After all, we’ve seen stock and bond markets move in lockstep. So what’s a trader to do? You could diversify, with, currency futures.

More than 70 different currency futures and over 30 currency options contracts, provides investors access to economies such as the Eurozone and United Kingdom, as well as Russia, Canada, Japan, Australia and New Zealand. If it’s developing economies you seek, there are currency contracts focused on China, India and Brazil.

Each is denominated in foreign currency amount and are available to trade almost 24 hours per day. There are also multiple contract sizes to choose from. So go ahead and diversify – really diversify.

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

Regards,
Peter Knight Advisor

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Metals Educational Video & Link Home Page

Understanding Intermarket Spreads: Platinum and Gold

Understanding Platinum Gold Spread Trades

Spread trading is a widely-used trading strategy in futures markets and offers some key advantages over outright futures trading (i.e., going long or short a single futures contract), including capital efficiencies with lower margin outlay and potentially superior risk-adjusted returns. This is particularly true for precious metals markets, where the underlying commodities demonstrate strong correlations with each other due to close economic links, but also distinct fundamental drivers that can create profitable spreading opportunities using the associated futures contracts.

Creating a Futures Spread

A spread trade using futures is created by buying a futures contract and simultaneously selling another futures contract against it. The spread acts as a hedging transaction, altering your exposure from an outright price fluctuation to the price differential between the individual legs of the spread trade. The profitability of a futures spread trade depends on the price direction, or differences in price movement, for the legs of the strategy.

Spread trades may be executed across many markets, but traders often look at similar contracts, or related markets, for spread trading opportunities. A closer relationship between the spread markets means the individual legs are more likely to move in tandem, enabling relatively stable price changes governed primarily by the pace of price moves between the legs (i.e., the relative performance of the legs), thereby reducing the level of risk for the trader. These strategies are referred to as relative value strategies.

Types of Spreads

Spreads may be broadly classified as intra-market spreads and inter-market spreads.

Intra-market spreads, also known as calendar spreads, are where a trader opens a long or short position in one contract month and then opens an opposite position in another contract month for the same futures market. Given the popularity of these spread trades, as well as their contribution to futures rollover activity, dedicated calendar spread markets are available on the CME Direct platform, which allows spread execution with no legging risk.

Inter-market spreads involve two separate, but related, futures markets with legs of the same maturity time frames. Inter-market spread strategies may have legging risk, but can be mitigated by using dedicated inter-market spread contracts or by selecting liquid underlying contracts for each leg in conjunction with using the auto-spreading functionality offered by some software vendor trading screens.

Benefits of Spread Trading

The main advantages of spread trading are reduced volatility and lower margin requirements, as the legs are generally in related markets at the same exchange.

Compared to outright futures, which can exhibit significant price swings, spreads can demonstrate extended trending price moves, making it easier for you to visualize patterns and take a directional view or implement a technical trading strategy.

Spread Trading with Precious Metals

The precious metals complex includes gold, silver, platinum and palladium contracts and offers trading opportunities to a global market through a wide variety of instruments. These markets not only provide highly correlated commodities, but also with unique price drivers that can create many attractive spread trading opportunities.

While you can choose from the range of instruments available for trade execution once you have identified your preferred strategies, the Precious Metals futures markets at CME Group offers highly liquid and deep markets that enable the fast, efficient execution of spread strategies, with the additional benefits of considerable margin savings (as all trades are centrally cleared through CME Clearing) and much alleviated legging risk.

More importantly, these futures contracts are predominantly electronically traded (over 90%) on CME Globex, which allows easy access for participants across the world and high-quality trade executions virtually 24 hours a day.

Gold-Platinum Spread Trade

Platinum is both a precious and industrial metal, widely used in catalytic converters in the automotive industry but also in jewelry and as an investment asset.

The price relationship and the price spread between gold and platinum may be useful as an indicator of shifts in the macro environment. Historically, platinum has been more expensive than gold since the white metal is about 15 times rarer than gold and has many industrial uses compared to the yellow metal. However, gold can become pricier during times of economic distress and political uncertainty when the yellow metal sees increased demand as a safe-haven asset. Conversely, during a positive economic cycle with increasing automobile sales, platinum’s premium over gold prices can rise even further as the metal will see increased industrial use. Since 2015 Gold has been trading at a premium to Platinum and the spread has been widening.

Platinum-Gold Price Spread (in U.S. dollars per troy ounce) Chart based on NYMEX Platinum and COMEX Gold Futures Prices

Current chart

CME Group offers one of the most liquid Platinum futures, making it a convenient instrument to manage risk and instantly capture trading opportunities, such as the platinum-gold price spread strategy.

Platinum-Gold Spread Profit and Loss Example

On March 2, a trader expects platinum demand to increase in the short term due to higher car sales and the platinum-gold spread to narrow. The trader buys two April Platinum futures contracts at $988.40/oz and simultaneously sells one April Gold futures contract at $1,231.90/oz (the Platinum contract is half the size, 50 oz, of the 100-oz Gold contract).

The resulting notional amounts for the legs are $98,840 and $123,190, respectively. The trader has thus entered the spread trade at -$243.50 and is long the spread.

The tables below show the trader’s realized profit and loss (P&L) as negative spread, narrowed as both Gold and Platinum increased, but at different rates.

Platinum-Gold (negative) spread narrows when position is closed by selling two Platinum April contracts and buying one Gold April contract simultaneously on March 30.

	Platinum April	Notional Amt	Gold April	Notional Amt	Spread
Trade Enter Prices	Buy $988.40	$98,840	Sell $1,231.90	$123,190	($243.50)
Trade Exit Prices	Sell $1,056.40	$105,640	Buy $1244.20	$124,420	($187.80)

Strategy Leg P&L		$6,800		-$1,230

Total P&L			$5,570

Margin Offsets

One of the benefits of spread trading with futures is the reduced cost of margin, otherwise known as margin offset. Margin discounts can occur when CME Clearing scans the trader’s portfolio of futures positions looking for offsets.

In our example, we had a long Platinum position and a short Gold position. This spread position would have been identified as an offset and therefore would require less margin than the two outright positions.

Platinum-Palladium Spread Trade

Palladium, like platinum, is also a precious metal widely used in the automobile industry as an auto catalyst. The difference being palladium is predominantly used in petrol-engine vehicles, whilst platinum is used in diesel-engine vehicles. In the recent past, platinum has traded at a premium to palladium, but as the chart below illustrates, the premium has narrowed. The spread may cross, but the last time this happened was approximately 20 years ago. Traders can express a view on the platinum-palladium spread through trading individual outright futures contracts in a spread strategy like the ones demonstrated above.

Gold & Silver Ratio Spread

Metals Educational Video & Link Home Page

Discover the Gold-Silver Ratio Spread

Spread trading is a widely used trading strategy in futures markets that offers key advantages over outright futures trading (i.e., going long or short a single futures contract). These advantages include, capital efficiencies with lower margin outlay and potentially superior risk-adjusted returns, which is particularly true for the precious metals markets, where the underlying commodities demonstrate strong correlations with each other due to close economic links but also distinct fundamental drivers that can create profitable spreading opportunities using the associated futures contracts.

A spread trade using futures is created by buying a futures contract and simultaneously selling another futures contract against it. The futures spread trade acts as a hedging transaction, altering the trader’s exposure from an outright price fluctuation, to the price differential between the individual legs of the spread trade. The profitability of a futures spread trade will depend of the price direction, or differences, in price movement for the legs of the strategy. Spread trades may be executed across many markets but traders often look at similar contracts, or related markets, for spread trading opportunities. A closer relationship between the spread markets means the individual legs are more likely to move in tandem, enabling relatively stable price changes governed primarily by the pace of price moves between the legs (i.e., the relative performance of the legs), thereby reducing the level of risk for the trader. These strategies are referred to as relative value strategies.

Types of Spread Trades

Spreads may be broadly classified as intramarket spreads and intermarket spreads.

Intramarket spreads, also known as calendar spreads, are where a trader opens a long or short position in one contract month and then opens an opposite position in another contract month in the same futures market. Given the popularity of these spread trades as well as their contribution to futures rollover activity, dedicated calendar spread markets are available on the CME Direct platform, which allows spread execution with no legging risk.

Intermarket spreads, involve two separate, but related, futures markets with the legs having the same maturity time frames. Intermarket spread strategies may have legging risk, but it can be mitigated by using dedicated intermarket spread contracts, where available, or by selecting liquid underlying contracts for each leg in conjunction using auto-spreading functionality offered by some software vendor trading screens.

Benefits of Spread Trading

The main advantages of spread trading are reduced volatility and lower margin requirements as the legs are generally in related markets at the same exchange.

Compared to outright futures which can exhibit significant price swings, spreads can demonstrate extended trending price moves making it easier for traders to visualize patterns and thereby take a directional view or implement a technical trading strategy.

Spread Trading with Precious Metals

The precious metals complex includes gold, silver, platinum and palladium and offers trading opportunities to a global market through a wide variety of instruments available in the market such as the futures. These markets not only provide highly correlated commodities, but also with unique price drivers that can create many attractive spread trading opportunities.

While market participants can choose from the range of instruments available for trade execution once they have identified their preferred strategies, the precious metals futures markets at CME Group offers highly liquid and deep markets that enable the fast, efficient execution of spread strategies with the additional benefits of considerable margin savings (as all trades are centrally cleared through CME Clearing) and much alleviated legging risk. More importantly, these futures contracts are predominantly electronically traded (over 90%) on CME Globex allowing easy access for participants across the world and high-quality trade executions nearly 24 hours a day.

Gold-Silver Ratio Trade

The Gold-Silver Ratio, or GSR, indicates the price of gold relative to silver and is calculated as the price of gold divided by the price of silver on a per-troy-ounce basis. It reflects how many ounces of silver a single ounce of gold is worth. Since 2013, the ratio has widened out from 55 to 75, reaching a high of 83.5 in March 2016. In the last two years, the GSR traded within the range 65.5 and 83.5.

Whilst both metals are considered precious and may trend together, gold is viewed as a global currency and is often used as an inflation hedge and safe-haven asset in times of market uncertainty. Silver has more industrial applications, with 50-60% consumed in industrial end-use compared with 10% of gold. Silver prices are sensitive to the economic cycle. The gold-silver ratio widens if gold prices experience a larger percentage gain relative to silver prices in times of economic or geopolitical uncertainty. Silver prices outperform gold in times of economic recovery as industrial demand picks up and puts the ratio under pressure. The ratio may be viewed an indicator of the health of the global macro economy.

Gold-Silver Ratio Chart based on COMEX Gold and Silver Futures Prices

Current chart

Screenshot_6

Silver prices are generally more volatile compared to gold prices (at time of writing, 20d historical volatility for gold and silver were around 9% and 19% respectively). When gold prices fall, silver prices are likely fall more and vice-versa. Consequently, the Gold-Silver Ratio tends to be driven on numerous occasions principally by moves in the price of silver.

Trading the Gold-Silver Ratio, a technical trader would look to determine a preferred point to enter and exit the spread. Fundamental traders, would assess the supply-demand imbalances and the macro conditions for each metal to take a directional view on the ratio before initiating a trade. Irrespective of the trading approach or a mix of both, Gold and Silver futures contracts at COMEX offer cost-effective and highly liquid instruments for the GSR trade.

The following screenshot for the most active COMEX Gold and Silver futures contracts on CME Globex shows extremely tight and liquid markets for the metals. The top of the order book is generally about one tick wide and there is abundant depth in the book beyond the top level for both the contracts.

Gold-Silver Ratio Profit and Loss Example

On March 1, a trader believes that gold prices will outperform silver prices in the short term. The trader decides to go long the Gold-Silver Ratio by buying one April Gold futures contract at $1,248.90/oz and simultaneously selling one May Silver futures contract at $18.445/oz, keeping the notional amounts for the legs nearly similar ($124,890 and $92,225 respectively). The trader has thus initiated the GSR trade at 67.71. The following tables show the trader’s realized profit and loss should the GSR move in their favor (i.e., firms up).

GSR edges higher by 1% when position is closed by selling one April Gold futures contract and buying one May Silver contract simultaneously on March 30.

Margin Offset

In our example, we had a long Gold position and a short Silver position. This spread position would have been identified as an offset and therefore would require less margin than the two outright positions.

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

Regards,
Peter Knight Advisor

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Metals Educational Video & Link Home Page

Understanding the Precious Metals Spot Spread

Understanding the Precious Metals Spot Spreads

CME Group’s new Precious Metals Spot Spread allows traders to seamlessly and transparently transfer risk between the COMEX futures market and the London OTC market in one simple and cost-effective transaction.

How Does It Work?

The Spot Spread is constructed of two legs. One leg is the active Gold or Silver COMEX futures contract and the other is a London deliverable unallocated future. This spread enables both the COMEX and London spot legs to be executed on CME Globex and cleared through CME Clearing, which provides greater security and guaranteed counterparty credit.

Example

A trader is long London OTC gold and short COMEX Gold futures and wants to offset the risks of both positions. By buying the spot spread, this trader would be able to cover the short COMEX position and liquidate the long London spot position simultaneously.

Electronic Trading and Reporting

CME Globex trading platform allows you to trade electronically and removes the worry of searching for counterparties to trade with. Spot Spread trades are automatically fed into CME Clearing to help you meet 5-minute reporting windows in busy markets.

Summary Overall

This contract melds the ease of COMEX futures and the flexibility of the OTC market. For traders who routinely transfer risk between the futures and OTC spot markets, the COMEX Precious Metals Spot Spread offers an around-the-clock transparent price for trading and a secure and efficient way of executing those trades.

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

Regards,
Peter Knight Advisor

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