Cash FX Traders: Learn to Use the FX Futures Markets to Give You an Edge! (Part 2)

11/07/2008 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Here’s a great page that all cash FX traders should have bookmarked:

http://equivalentswdc.cme.com:443/index.html

And you’ll know you have found the right page if it looks like this:

chart

From this page, it’s very easy to see just what cash FX price translates to in the CME FX futures. This page gives you the “Forward Points,” or Swap Points, that represent the difference between trading in the cash FX market, which has a two day settlement, and the CME FX futures market, which has a fixed settlement based on the contract month you are trading.

So the plan is simple: You set up a futures chart right next to your cash chart and you are able to use non-time-based charts like range bars by charting them on the CME FX futures contracts. Then, when you see an entry set up you like, you convert the CME FX futures price back into the cash FX equivalent price. Then you can choose which market you want to take your position in!

Here’s one more tool to make it easier:

chart

This is an image of a “cheat sheet” I keep on my computer. At the start of each morning, I go to the CME Equivalents page, get the forward points, plug them into each currency pairs’ sheet, and then I have a sheet in front of me that tells me that when the CME euro FX/US dollar futures are trading at 128.65, it’s trading at 1.2855 in the cash FX market. And this “cheat sheet” is even more important in the currency futures that are traded as inverses of the cash FX market, like the Japanese yen/US dollar FX futures. This sheet automatically adds or subtracts the forward points for you and then does the correct inverse calculation, so you’ll be able to see that 98.30 in the cash FX market equals 102.00 in the CME Japanese yen/US dollar futures.

If you trade cash FX, don’t miss out on these very powerful techniques! Get a bit creative, do a little homework, and get the edge that some of us already use to trade both the cash FX and FX futures markets.

If you’d like a copy of my Excel spreadsheet that does the simple calculations for you, drop me a line and I’ll be glad to send you a copy.

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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