The FX market, sometimes referred to as the currency market or Forex, is the largest and deepest capital market in world. It trades virtually around the clock, worldwide, every day. FX futures contracts, available at CME Group, have provided market participants hedging and trading tools for 50 years.
When trading FX futures, there are some important concepts to be aware of. First, FX futures trade as currency pairs.
A currency pair is comprised of a base currency and a terms currency. The base currency is sometimes referred to as the named currency. While the second currency is referred to as the terms or quote currency.
Currency pairs versus US dollars are quoted in one of two ways: American terms or European terms. These terms are not related to the geographical location of the currencies involved, but rather, where the US dollar sits in the currency pair. For example, if the US dollar is in the quote location, this is referred to as an American terms quotation.
Conversely, if any other currency other than the US dollar is in the quote location, it is considered a European terms quotation.
Most FX futures at CME Group trade in the American terms quotation. In some cases, contrary to their OTC spot currency convention. For example, the Mexican peso, which trades in European terms in the spot market, trades in American terms as a CME FX futures contract. It is very important to be aware of the quoting convention of the contract you are trading – always refer to the contract specifications before trading.
Additionally, traders must understand the notional size and minimum price increment of the contract they are trading. For example, Micro Euro FX futures have a contract size of €12,500 euros, 1/10 the size of the standard EURO FX futures contract.
They are quoted and traded in US dollar terms, with a minimum tick increment of $1.25 per contract.
Finally, all futures contracts at CME Group have an expiration date. The expiration date is the last day that you can trade that futures contract. Most FX futures at CME Group expire two business days prior to the third Wednesday of the contract month.
Upon expiration, the contracts are settled either financially or physically.
Physical settlement involves the short position delivering the named currency to the long position, according to contract specifications. Financial settlement involves a final, cash debit, or credit made for the value of the contract at the time of contract expiration. Settlement of the Micro FX futures vary depending upon the contract specifications.
It is important to understand the settlement process of any futures contract and consult with your broker on how physical delivery of contracts is handled.
Micro FX futures are available to trade on CME Globex Sunday through Friday, nearly 24 hours a day.
Micro FX futures offer FX exposure in a smaller contract size. As a listed and cleared futures contract, trading Micro FX futures reduces trade counterparty risk and offers the same benefits of our larger standard-sized G10 futures at a fraction of the initial upfront margin.
Micro FX futures extend CME Group’s FX derivatives franchise to all market participants. Trading on a regulated exchange allows you to see the same prices, quotes, and trades as everyone else in the marketplace.