The ICE Zone | Currency trading education | Ray McKenzie, ICE Futures U.S.

The U.S. dollar is the world’s primary reserve currency. Because many physical commodity markets — including crude oil and the “soft” commodities (coffee, sugar, cocoa, cotton and frozen concentrated orange juice) traded on ICE Futures U.S. — are priced in U.S. dollars, traders and investors need a liquid trading vehicle to manage commodity and portfolio risks.
ICE USDX futures meet this need.

The principal trading advantage of ICE USDX futures (in addition to their intrinsic economic characteristics), is their low cost, liquidity and transparency. Instead of paying
bid-ask spreads on six separate currencies, an investor can go long or short the global FX market using ICE USDX futures.

Additional key points and advantages in learning how to effectively use USDX futures in your trading program include:

For a speculator, the price discovery trade is simple and straightforward; if you
believe the ICE USDX will rise, you “go long” a futures contract; if you believe
the ICE USDX will fall, you “go short” a futures contract. These same market
views can be expressed in options as well.
Risk transfer is the second purpose of a futures market. Any holder of dollar-denominated assets or receiver of future dollar payments can seek protection in the futures markets. These participants are long the market and can offset risk by
going short a futures contract. Any dollar-domiciled holder of foreign currency assets, or any party liable for future dollar payments, is short the market and can offset risk by going long a futures contract.
If managers decided to hedge dollar risk, the ICE ICE USDX futures and options
are an effective means of doing so. The six components of the ICE ICE USDX
index have a surprisingly low correlation of returns with each other, as shown
in the table below. This makes the ICE ICE USDX an effective broad hedge as opposed to, say, simply trading the euro or the yen.
The primary driver of all currency movements is differential interest rate expectations.
The USDX is quite unique among currency indices in its fixed composition.
By contrast, the Federal Reserve’s trade-weighted dollar index changes
annually to reflect prior-year developments — this after-the-fact index is
unsuitable for trading purposes.
For all of the differences in weighting and composition, the ICE USDX
futures contract and cash index matches the Federal Reserve’s trade-weighted
index of major currencies very closely. Its r2, or percentage of variance
explained, is .933.

USDX comparison to Federal Reserve Index

USDX Weighting

The ICE Exchange online: theice.com

ICE FUTURES U.S. U.S. DOLLAR INDEX
FUTURES SPECIFICATIONS

HOURS:
2000 EST TO 1800 NEXT DAY.
SETTLEMENT AT 1500.

SYMBOL:
DX

SIZE:
$1,000* INDEX VALUE

QUOTATION:
ICE USDX POINTS CALCULATED
TO THREE DECIMAL POINTS

CONTRACT LISTINGS:
MAR-JUN-SEP-DEC QUARTERLY EXPIRATION CYCLE

MINIMUM FLUCTUATION (TICK):
0.005 = $5

DAILY SETTLEMENT:
VOLUME-WEIGHTED AVERAGE IN CLOSING
SESSION, 1459 - 1500 EST

FINAL SETTLEMENT:
PHYSICAL DELIVERY OF SIX COMPONENT
CURRENCIES IN THEIR RESPECTIVE
WEIGHTS ON THIRD WEDNESDAY OF
THE EXPIRATION MONTH

FEES:
$1.35 PER CONTRACT PER SIDE (NON-MEMBERS).
NO ADDITIONAL EFP CHARGE.

DAILY PRICE LIMIT:
NONE

Ray McKenzie ICE Futures US

ABOUT RAY McKENZIE, VICE PRESIDENT,
BUSINESS DEVELOPMENT, ICE FUTURES U.S.

Ray McKenzie is Vice President, Business Development, for ICE Futures U.S., a subsidiary of Intercontinental Exchange (NYSE: ICE). In his role, Mr. McKenzie oversees all business development and marketing for ICE’s U.S. futures product line across agriculture, equity indexes and foreign exchange.

Mr. McKenzie has served in the financial services arena for over 20 years. Prior to joining ICE, he spent 13 years at Morgan Stanley, where he was Managing Director and co-head of the FX futures arbitrage business. He also spent four years at the Chicago Mercantile Exchange as Director of Customer Relationship Management and Director of Foreign Exchange.

Mr. McKenzie earned a Bachelor of Arts degree from New York University .

ABOUT KEVIN COOK, PEAK6 Investments

Kevin Cook was an institutional FX trader for nine years before joining PEAK6 Investments in 2008 to help create The Options News Network. He is a host of ONN's OptionsPhysics Education and Mark2Market Futures analysis and appears regularly on CNBC and Fox Business Network to provide commentary on currencies, commodities, and equity options trading.