Stocks & Commodities V. 29:9 (31): Futures For You by Carley Garner

Stocks & Commodities V. 29:9 (31): Futures For You by Carley Garner
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Futures For You by Carley Garner


The US Dollar Index seems to be overlooked. Are there opportunities there?

Yes! The US Dollar Index (DX) futures contract, traded on the Intercontinental Exchange (Ice), could be one of the most underrated futures products on the board. Letís face it, traders are human and humans have an undeniable tendency to migrate toward the comfortable. Unfortunately, the dollar index is the oddball of the currency futures complex, simply because it doesnít trade on the Cme Group with the others, and it carries different contract specifications. Nonetheless, it offers traders some attractive characteristics that canít be found elsewhere, such as built-in diversity.

Unlike Cme GroupĖtraded currency futures, which are all paired against the US dollar in ďAmerican termsĒ (foreign currencies priced in dollars), the DX future is the value of the US dollar against a basket of foreign currencies. As a result, this futures contract enables speculators to trade the value of the dollar, as opposed to against a specific currency. In addition, it can be used as an effective tool to hedge risk of changes in greenback valuation for those with international stock, bond, or commodity exposure.

I would also argue that the US Dollar Index futures contract might be an alternative to the highly volatile and treacherous metals complex. If you ask any gold or silver bull why it is they believe metals prices will appreciate, they will likely tell you that a devaluing dollar, assuming the trend continues, will force precious metals prices higher.

If the primary argument for owning metals is the declining dollar, it might be feasible to speculate on the short side of the greenback, as opposed to playing the long side in the overly dramatic silver and gold contracts. As many traders have abruptly learned the hard way, the metals markets can be treacherous in both directions. This isnít to say that the DX doesnít see volatility from time to time, but in my opinion the risk exposure in this diversified index is much less than owning positions in gold and silver.

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