Established in 1871, the Canadian dollar is the official currency of Canada, and it is often denoted with CA$, Can$, or C$ to differentiate it from other dollar-based currencies. It accounts for about 2 percent of all global reserve currencies and is the fifth most-held reserve currency in the world, after the U.S. dollar, the euro, the British pound, and the yen.

The currency is issued and maintained by the Bank of Canada. In the foreign exchange market, the Canadian dollar is known as the loonie, a name it got from the image of the loon on its one-dollar coin. On the futures exchanges, the Canadian dollar futures is quite popular, being the 7th most-traded currency futures in the world.

Canadian Dollar Futures Contract Specifications
Symbol
CD
Exchange
CME
Tick Size
$6.25
Contract Size
12,500,000 Japanese yen
Contract Months
March, June, September, December
Trading Hours
Sundays: 5:00pm – 4:00pm CT//Monday – Friday: 5:00pm – 4:00pm CT the next day. Closes at 4:00pm on Fridays
Settlement
Deliverable
Last Trading Day
The second business day before the third Wednesday of the contract month

What Do Canadian Dollar Futures mean?

The Canadian dollar futures is a financial derivative instrument in which the underlying asset is the Canadian dollar, and the pricing is based on the expected future exchange rate of the Canadian dollar to the U.S. dollar. By definition, the Canadian dollar futures is a tradable contract to receive or deliver the specified amount of the currency on a future date, at an already agreed exchange rate.

As with all other futures contracts, the Canadian dollar futures are standardized and trades on the futures exchanges. That is one of the key features that distinguish the CAD/USD spot forex market, which operates over the counter, from the Canadian dollar futures market. An important benefit of trading on an exchange is that the currency futures market is well regulated, unlike the spot forex market, where the broker can trade against the trader.

The Canadian dollar futures is a leveraged instrument, so a trader only needs to deposit a portion of the total worth of the contract to be able to trade the contract. The minimum amount a trader needs to carry a contract is referred to as the margin, and it varies with the exchanges, market conditions, expiration of the contract, and the type of contract (full or micro contract).

At the end of every trading day, the clearinghouse of the exchange credit/debit the traders’ accounts with the profits or losses made on that day. Traders whose accounts are falling below the maintenance margin are required to top up their accounts to be able to keep their contracts.

To start trading the Canadian dollar futures, all you need is to create an account with the exchange through your futures broker and deposit the required margin. You need not have the full dollar worth of the contract to start. Be cautious about futures trading though — while you can easily make money, you can also lose more than you invested.

Why Trade the Canadian Dollar futures

Traders play the Canadian dollar futures market for the following reasons:

Speculation: The majority of the traders in the currency futures market are there for speculative reasons, and the Canadian dollar futures offers a great opportunity for speculation.

Hedging: Investors, fund managers, and business people, who are exposed to Canadian dollar exchange rate risks, may use the Canadian dollar futures as a risk management tool.

Arbitrage trading: Arbitrage traders may simultaneously buy and sell the Canadian dollar contract on different platforms so as to benefit from any imbalance in prices.

How the Canadian Dollar Futures Trade

The Canadian dollar futures contracts trade on the Chicago Mercantile Exchange (CME) Group, and through the Globex electronic trading platforms, the contract can be traded from any part of the world Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the following day, with a one-hour break each day. The only exception is Friday when the market closes by 4:00 PM and reopens on Sunday by 5:00 PM.

A Canadian dollar futures full contract settles for 100,000 Canadian dollars. The price quotation is in U.S. dollars to five decimal places, and the minimum price fluctuation is as follows:

  • Outright fluctuation — $0.00005 per CAD increments or $5:00 per contract
  • Consecutive months spread — $0.00001 per CAD or $1.00 per contract (only on the Globex platform)
  • All other spread combinations — $0.00005 per CAD or $5.00 per contract

Apart from the full contract, there are also micro contracts on the Canadian dollars, which are equivalent to 10,000 Canadian dollars. For the full contracts, there are contracts listed for the first three consecutive months and 20 months in the March quarterly cycle (March, June, September, and December).

Trading terminates at 9:16 a.m. CT on the business day immediately preceding the third Wednesday of the contract month (usually Tuesday). If the stated date for termination is a bank holiday in Chicago or New York City, then, trading shall terminate on the next preceding business day common to Chicago and New York City banks and the Exchange.

At expiration, the contract is settled by physical delivery of the stipulated amount of Canadian dollars and is usually done on the third Wednesday of the expiring month. If that day is a bank holiday in either Chicago, or New York City, or is not a business day in the country of delivery, the delivery shall then be made on the next day which is a business day in the country of delivery and is not a bank holiday in Chicago or New York City.

Canadian Dollar Futures Trading Strategies

Canadian Dollar Futures Strategy

Canadian Dollar Futures Strategy

Being one of the bigger futures contracts on currencies, the Canadian dollar market works well with trading strategies. There are a lot of edges hidden on the market that you may use to build your own trading strategies. We ourselves trade several trading strategies on this market, and it often blends beautifully in a portfolio of trading strategies!

For those who are interested in receiving edges for a variety of markets, we highly recommend our unique edge membership, where you’ll get new edges sent by mail each month!

Canadian Dollar Futures Seasonality

Here is a seasonal chart of the canadian dollar futures market.

Canadian Dollar Futures Seasonal Chart

Canadian Dollar Futures Seasonal Chart

Source

Factors That Affect the Canadian Dollar Futures

There are many fundamental and technical factors that can affect the Canadian dollar futures. The fundamental factors include economic reports and political events.

Economic data: These are the reports with the highest impact on the Canadian dollar futures market:

  • Monetary policy reports, including interest rates and policy statements
  • Inflation-focused reports, such as the consumer price index and the producers’ price index
  • Growth reports, such as the GDP, manufacturing PMI, services PMI, and retail sales
  • Reports about the balance of payments, such as current account and trade balance reports
  • The U.S. Energy Information Administration (EIA)’s Natural Gas Storage report
  • Global Crude Oil Inventory
  • Commodity prices, especially crude oil

Political events: Serious political events, such as elections, in both Canada and the US, can have significant effects on the Canadian dollar futures.

Conclusion

The Canadian dollar futures offers business people a way to hedge their exchange rate-exposed obligations and provides traders with the opportunity to speculate on the Canadian dollar. It trades on the CME and its Globex electronic trading platforms.

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