Futures For You by Carley Garner
I’m interested in trading foreign futures
in an account held at a US brokerage
firm; what should I be aware of?
Most US brokerage firms offer their
clients access to foreign futures and options.
If your broker doesn’t, you should
reconsider where you house your commodity
trading account. Even if you don’t
intend to trade foreign markets, that they
are offering you limited product access is
a telltale sign of a brokerage that simply
isn’t equipped to specialize in commodity
trading. Perhaps their focus is in stocks
or FX, but it isn’t futures.
Some of the most popular foreign
futures contracts are the German DAX
(a stock index futures contract), the German
bunds (sovereign debt futures), and
canola oil (a.k.a. rape seed traded on the
ICE Canada exchange).
Trading in foreign products can complicate
the accounting on your brokerage
statements because such products are
not traded in US dollars, as contracts on
domestic exchanges are. Instead, they are
valued and traded in the designated currency
in which the exchange is located. For instance, those buying or selling the
DAX futures are not making or losing US
dollars on each trade; instead, they are
accumulating profits and losses in euros.
Similarly, if you buy and sell a canola
futures contract, your profit & loss will
be calculated in Canadian dollars. In
other words, upon exit of the position,
your account will either be credited or
debited in “loonies.”
Brokerage firms will typically give you
the green light to trade foreign products in
your account even though you are holding
US dollars on deposit for margin. Once
you do, your account will no longer be
valued in a single currency. Your brokerage
statement will display the current US
dollar balance along with the balance of
any other currency resulting from trades
executed in foreign markets.
For instance, if a trader started with
$10,000 and netted a profit of 200 euro on
a DAX trade, his statement would display
$10,000 and a separate account balance
of 200 euro. The net is then figured by
considering the current exchange rate
(typically the 5 pm reading of the spot FX
price on the statement date) and displayed
on a third line of the brokerage statement.
Assuming a value of $1.35 for the euro,
the client account statement would read a
“combined currency balance” of $10,270
($10,000 + (200 euro × 1.35)). For simplicity,
this example ignores transaction
costs associated with the trade.