Last Updated on 21 September, 2020 by Therobusttrader

The peso is the official currency of Mexico. It is often represented with the symbol $ or Mex$, and in the forex market, the currency is abbreviated with the code MXN. Although not considered a major currency, the Mexican peso futures is quite popular among traders — being the 10th most-traded currency in the world, third in the Americas, and the most-traded among Latin American currencies.

The Mexican peso future is a contract whose underlying asset is the Mexican peso, with the pricing based on the expected future exchange rate of the Mexican peso to the U.S. dollar. By definition, the Mexican peso futures is a tradable agreement to receive or deliver a specified amount of the currency on a future date, at an already agreed exchange rate.

First issued by the Spanish Empire, the Mexican peso was very popular in the 1700s and was once the official currency of the whole of North America, including the US. Now, the currency is issued and maintained by the Bank of Mexico since the establishment of the bank in 1925.

Mexican Peso Futures Contract Specifications
Symbol
MP
Exchange
CME
Tick Size
$5
Contract Size
500,000 Mexican pesos
Contract Months
All months
Trading Hours
Sun – Fri 5:00pm – 4:15pm CT
Settlement
Physical
Last Trading Day
The 2:nd business day after the third Wednesday of the contract month. (Usually Mondays)

 

What Does the Mexican Peso Future Mean?

As a financial derivative instrument, the Mexican peso future is a contract whose underlying asset is the Mexican peso, with the pricing based on the expected future exchange rate of the Mexican peso to the U.S. dollar. By definition, the Mexican peso futures is a tradable agreement to receive or deliver a specified amount of the currency on a future date, at an already agreed exchange rate.

Just like any other futures contracts, the Mexican peso futures are standardized and trade on the futures exchanges. This is one of the key features that distinguish the currency futures from the USD/MXN spot forex market, which operates over the counter. Trading on an exchange also comes with the benefit of being highly regulated, unlike what happens in the spot forex market, where the broker can trade against the trader.

The Mexican peso 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 trade the contract is called the margin, and it varies with the exchanges, market conditions, and the expiration of the contract.

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

All you need to start trading the Mexican peso futures contract is to create an account with the exchange through a futures broker and deposit the required amount. Since it is a leveraged product, you need not have the full dollar worth of the contract to start. Be cautious about futures trading though — you can easily make money, but it’s also easy to lose more than you invested.

Why Trade the Mexican Peso Futures?

Why Trade Mexican Peso Futures?

Why Trade Mexican Peso Futures?

Traders trade the Mexican peso futures for many reasons, including the following:

Hedging: Fund managers, investors, and business people, who make use of Mexican peso and are exposed to exchange rate risks, may trade the Mexican peso futures as a way to manage their risks.

Speculation: Most of the traders in the currency futures market are there for speculative reasons, and the Mexican peso future is not an exception. Speculators provide much-needed liquidity in the market.

Arbitrage trading: Arbitrage traders simultaneously buy and sell the Mexican peso contract on different platforms in order to benefit from an imbalance in prices.

How the Mexican Peso Futures Trade

The Mexican peso futures contract is offered on the Chicago Mercantile Exchange (CME) Group and can be traded from any part of the world through the Globex electronic trading platforms — 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 Mexican peso futures contract is equivalent to 500,000 Mexican pesos. The price quotation is in U.S. dollars to five decimal places, and the minimum price fluctuation is $0.00001 per Mexican peso increment, which is equivalent to $5.00 per contract.

There are contracts listed for thirteen consecutive months plus two deferred months in the March quarterly cycle (March, June, September, and December). On the last trading day, trading terminates at 9:16 a.m. Central Time.

The last trading day is often the second business day prior to the third Wednesday of the contract month (usually Monday). 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 Mexican peso 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.

Factors that Affect the Mexican Peso Futures

There are many factors that can affect the Mexican peso, including fundamental and technical factors. Here, we will discuss only the fundamental factors, and they can be divided into economic reports and political events.

Economic reports: These are the data that have the highest impact on the Mexican peso 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
  • Commodity prices, especially crude oil
  • The U.S. crude oil inventory

Political events: Important political events, such as elections, referendums, or trade wars with the US, can have significant effects on the Mexican peso futures.

Mexican Peso Futures Trading Strategies

Currency Futures Trading Strategy

Currency Futures Trading Strategy

The Mexican futures market may not be the easiest market when it comes to finding trading strategies. However, it’s not an impossible task if you just come up with the right ideas that correspond with the market!

Still, if you’re looking into creating trading strategies for the currency futures markets, we would recommend that you begin elsewhere, like for instance on the Japanese yen futures market, where finding a trading strategy won’t be as hard!

if you’re interested in getting trading strategies for a variety of future markets, we recommend that you have a closer look at our edge membership. There you’ll get new edges sent right to your inbox each month!

Conclusion

The Mexican peso futures offer businesses, investors, and fund managers a way to hedge their exchange rate-exposed obligations. It also provides traders with the opportunity to speculate on the Mexican peso. The contract trades on the CME and its Globex electronic trading platform.

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