Markets Home

Active trader

Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio.

Find a broker

Search our directory for a broker that fits your needs.

CREATE A CMEGROUP.COM ACCOUNT:

MORE FEATURES, MORE INSIGHTS

Get quick access to tools and premium content, or customize a portfolio and set alerts to follow the market.
Market Data Home

Real-time market data

Stream live futures and options market data directly from CME Group.

E-quotes application

Access real-time data, charts, analytics and news from anywhere at anytime.

CME DATAMINE:

THE SOURCE FOR HISTORICAL DATA

Explore historical market data straight from the source to help refine your trading strategies.
Services Home

Uncleared margin rules

Understand how CME Group can help you navigate new initial margin regulatory and reporting requirements.

Calculate margin 

Evaluate your cleared margin requirements using our interactive margin calculator.
Education Home

FX Insights from Macro Hive

Receive exclusive insights on key FX macro themes, volatility trends, and market events through our bi-weekly report.

Create a CMEGroup.com Account: More features, more insights

Get quick access to premium educational content, including expert-led webinars, a real-time trading simulator, and more.
      Course Overview
      • FX Link: What is it?
      • FX Link: Convert Non-IMM Dated to IMM-Dated Forward
      • FX Link: Offset FX Hedge
      • FX Link: Swap Replication
      • FX Link: Replacement of OTC FX Option Delta Hedge
      • FX Link: Optimizing an Exchange Listed FX Option Hedge
      • FX Link: Hedge FX Risk of a Non-IMM Dated FX Exposure
      • FX Link: Understanding FX Link with C-Cross
      What is CME FX Link?
      You completed this course.Get Completion Certificate

      FX Link: Optimizing an Exchange-Listed FX Option Hedge

      Video not supported!

      FX Link is a CME Globex-traded spread between FX futures and OTC Spot FX. FX Link is traded as a differential between FX futures and Spot FX. The spread results in the simultaneous execution of FX futures cleared by CME Group and OTC Spot FX subject to OTC documentation and credit relationships.

      Let’s look at a market scenario of how FX Link could be used to optimize an exchange-listed FX option hedge.

      Assume a fixed income portfolio manager has a euro-denominated bond maturing and wants the proceeds repatriated to US dollars for use in the United States. A typical OTC market approach might be purchasing a EUR/USD put option with a custom expiration date. If the put is in-the-money at expiry, the portfolio manager would exercise the option, automatically delivering into a short EUR/USD spot transaction that would serve to move the bond’s proceeds from euros to US dollars.

      If the put is out-of-the-money, the portfolio manager will need to sell euros for US dollars in the OTC spot FX market. The reduced transparency when trading bespoke options usually results in high execution cost and can lead to significant price slippage if the portfolio manager chooses to offset their option position prior to expiry.

      Alternatively, the portfolio manager can buy an exchange-listed EUR/USD put option at CME Group, anonymously, with the benefits of transparent, competitive central-limit-order-book pricing.  If the put is in-the-money at expiry, the listed option is auto-exercised. The portfolio manager can then buy the EUR/USD basis on FX Link to offset the short futures position originating from the options’ exercise while achieving the desired spot settlement of selling euro for US dollar.

      If the put expires out-of-the-money, the portfolio manager merely executes a spot transaction instead, selling euro for US dollar.

      By using listed, CME Group options optimized with CME FX Link, the portfolio manager can repatriate euros to dollars while benefiting from the transparency and efficiency of the world’s largest FX options central-limit-order-book, the benefits of central clearing, and the capital efficiency and funding benefits of futures and options portfolio netting and margin optimization.

      This is just one example of using FX Link to manage risk and positions across OTC FX spot and CME Group FX futures, seamlessly connecting the two markets and allowing you to better manage and optimize margin and credit lines.


      Test your knowledge

      Related Courses
      /content/cmegroup/en/education/courses/what-is-cme-fx-link/fx-link-optimizing-an-exchange-listed-fx-option-hedge
      • {{ course.name }}
      Previous Lesson
      Next Lesson
      Course Overview
      Get Completion Certificate
      Previous Lesson Next Lesson
      • YouTube
      • Twitter
      • Facebook
      • LinkedIn
      • Instagram
      • Rss

      CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
      Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

      © 2021 CME Group Inc. All rights reserved.

      Disclaimer  |  Privacy Policy  |  Cookie Policy  |  Terms of Use  |  Data Terms of Use  |  Modern Slavery Act Transparency Statement  |  Report a Security Concern