Many traders have the need to hedge or take a position against a daily benchmark fixing rate within the global FX market. But when trading futures, how can you execute against the closing benchmark rate?

The Basis Trade at Index Close, or BTIC, solves this problem by allowing market participants to trade futures at a fixed spread to the published underlying benchmark rate.

How does this work? A buyer and seller agree to trade futures contracts, but instead of agreeing to a specific price, they agree to a spread, or “basis” to be added to that day’s closing benchmark level to determine the futures price.

This basis is agreed upon before that day’s benchmark level is known. The value of the basis will be impacted by the interest rate differentials between the two currencies and the remaining number of days until expiry of the underlying futures contract. The value can be either negative or positive.

Once the official closing benchmark level is published, the actual futures are settled at a price equal to the closing benchmark level plus the agreed-upon basis spread.

BTIC transactions completed by 3:40pm, London time, will use that trade date’s corresponding fixing rate to calculate the futures price. While those BTIC transactions completed after the market re-opens at 4.30pm, London time, will be against the next trade date’s corresponding fixing rate.

BTIC+ will allow customers to trade in advance against the fixing rate to be published on the last business day of the current calendar month. The BTIC+ market will be open all day in line with standard CME Globex timings. In addition to trading BTIC and BTIC+ using firm pricing in the central limit order book, eligible contract participants may negotiate BTIC block trades directly with another counterparty and submit the trade for clearing.

For detailed trade examples for how FX BTIC and BTIC+ trades work, please read our article: FX Basis Trade at Index Close (BTIC) and BTIC+ trade examples.