FX Link can be leveraged to achieve the exposure of an FX swap with the additional benefits of execution through an anonymous central limit order book and centrally cleared forward exposure.
Scenario
A market participant is long a position in spot EUR/USD and intends to roll the position forward one month into an IMM-dated OTC EUR/USD forward.
OTC approach:
- Execute an IMM-dated FX swap via bank/PB relationship, selling spot EUR/USD, buying an IMM EUR/USD forward.
- OTC FX swaps typically trade bilaterally via phone, a single bank platform or captive through an FX prime broker (PB).
- Incur applicable PB fee and spread charged by the PB / LP for the FX swap trade.
FX Link approach
- Leveraging electronic workflows, buy EUR/USD FX Link spread via anonymous central limit order book, selling EUR/USD spot and buying EUR/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 the 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.
