What is the U.S. Dollar Index futures?

The U.S. Dollar Index futures are standardized contracts, which trade on futures exchanges and whose values reflect the expected value of the U.S. Dollar Index in the future. By definition, a U.S. Dollar Index futures contract is an agreement to make or take delivery of the currencies that make up the index — in their respective percentage weights — on a specified future date and at a predetermined rate.

The U.S. Dollar Index 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 can deposit to carry the contract is known as the margin, and it varies with the market conditions and the expiration of the contract.

To start trading the U.S. Dollar Index 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 mindful of futures trading though — while it is easy to make money, you can also lose more than you invested.

Why Trade the U.S. Dollar Index futures?

There are different reasons to trade the U.S. Dollar Index futures, such as these three:

Hedging: The U.S. Dollar Index futures can be used as a risk management tool by investors, business people, and fund managers to bet against any exchange rate risk with respect to the U.S. dollar.

Speculation: The majority of the traders who trade the U.S. Dollar Index futures do that for speculative reasons. With the level of liquidity and volatility in the market, the U.S. Dollar Index futures allows traders to speculate on the value of the USD relative to a basket of select currencies in one transaction.

Arbitrage trading: Arbitrage traders can simultaneously buy and sell the U.S. Dollar Index futures contract on different platforms to benefit from any imbalance in prices.

How the U.S. Dollar Index Future Trades

The U.S. Dollar Index futures contracts are traded on the Intercontinental Exchange (ICE), and through its electronic trading platform, the contract can be traded from any part of the world for about 21 hours each day from 6:00 p.m. ET on Sunday night to close of market on Friday. Note that the electronic platform is available 30 minutes before the opening for order entry.

One contract of the U.S. Dollar Index futures (DX) is equivalent to the value of the index multiplied by $1000. For example, if the index value is 95.00, one contract of the index futures will be worth $95,000. The price quotation is in U.S. Dollar Index points, calculated to three decimal places (.010 = $10), while the tick size is 0.005, which is equal to $5.00.

The U.S. Dollar Index futures contracts are delivered four months in the March, June, September, and December quarterly expiration cycle. There is no price limit for the DX contract, neither does the contract have position limits.

The volume-weighted average of all electronic trades transacted in the closing session (14:59 to 15:00 Eastern time) are settled on a daily basis — the exchange’s clearinghouse credit or debit the traders’ accounts with the profits or losses made on that day. Any trader whose account is falling below the maintenance margin will be required to top up the account to be able to maintain the contract.

Trading stops at 10:16 a.m. ET on the last trade date, which is two days prior to the final settlement on the third Wednesday of the expiration month. On the day of the final settlement, the contract is physically settled by delivering the six component currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc — in accordance with their respective percentage weights in the Index. Settlement rates may be quoted to three decimal places.

Factors That affect the U.S. Dollar Index Futures

While there are many factors, both fundamental and technical, which can affect the U.S. Dollar Index futures, we will be focusing on the fundamental factors which include economic data reports, political events, and any form of global crisis.

Economic reports: All the major economies release various types of economic data on a weekly, monthly, and quarterly basis. The reports from the US have the highest impact on the index, followed by data from the EU (especially Germany) because of the high weight the euro carries in the basket of six currencies.

Any data from any of component countries can bring varying degrees of volatility in the U.S. Dollar Index futures market, but these are the reports with the highest impact on the market:

• Monetary policy reports, especially interest rates and policy statements from the Federal Open Market Committee (FOMC) of the Federal Reserve and the European Central Bank
• 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
• Consumer sentiment reports

Political events: Important political events, such as elections or referendums in the US, Europe (especially Germany and France), Japan, and the UK, can have significant effects on the U.S. Dollar Index futures. The Brexit vote, for example, caused the index to rise.

Global crisis: The USD is often seen as a safe-haven asset, so when there any global crisis, such as global economic crises or wars, the U.S. Dollar Index futures will rise.

U.S. Dollar Index Futures Seasonality

Here is a seasonal chart of the market:

U.S. Dollar Futures Strategies

Being a fairly liquid market, finding a trading strategy for the U.S. Dollar Futures market indeed is possible if you just put in enough effort.

One of the main benefits of trading strategies on the U.S. Dollar Futures market is that they tend to be fairly uncorrelated to strategies on other markets. And with several uncorrelated strategies, you may increase your position size to make more money, at the same time as your risk level decreases.

If you’re interested in getting edges for a variety of different futures markets and ETFs, we recommend that you have a look at our edge membership. As a member, you’ll get new edges right to your inbox every day!

Conclusion

The U.S. Dollar Index futures provides businesses with a way of hedge their foreign exchange-dependent obligations and offers traders the opportunity to speculate on any of the component currencies. It trades on the ICE and its electronic trading platforms.

Here is our archive with articles about other tradeable futures markets.

FAQ

What are U.S. Dollar Index futures?

U.S. Dollar Index futures are standardized contracts traded on futures exchanges. They reflect the expected value of the U.S. Dollar Index in the future. These contracts involve agreements to make or take delivery of the currencies that make up the index at a predetermined rate on a specified future date.

How can I start trading U.S. Dollar Index futures?

To start trading, create an account with the exchange through a futures broker and deposit the required margin. The leverage allows trading with a portion of the total contract worth. Be mindful of the minimum margin requirement and the risks associated with futures trading.

What factors affect U.S. Dollar Index futures?

Economic data reports, political events (e.g., elections or referendums), and global crises can impact U.S. Dollar Index futures. Key economic reports include monetary policy statements, inflation-focused reports, growth reports, balance of payments reports, and consumer sentiment reports.