FX Link can be used to migrate broken-dated positions into a netted, cleared futures IMM date, minimizing the total transaction cost associated with achieving this result.
Scenario
A market participant has established a long position in a non-IMM-dated GBP/USD forward. Later, they intend to roll to an IMM-dated GBP/USD forward as the original position converges to spot.
OTC approach
- Sell an offsetting spot-dated GBP/USD forward that has converged to spot, and buy an IMM-dated GBP/USD forward via bank/PB relationship
- Incur applicable prime brokerage (PB) fee and bid-ask spread charged by the PB / liquidity provider (LP) for the trade.
FX Link approach
- Buy GBP/USD FX Link spread via the anonymous central limit order book, selling GBP/USD spot and selling GBP/USD FX IMM-dated, centrally cleared FX futures.
- Incur applicable PB fee for spot leg, FCM and CME Group exchange fee for the futures leg and bid-ask spread on the FX Link spread, with the ability to work orders, avoiding paying spread.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
