Have you watched the US Dollar Index (USDX) Futures contract trade during the day? Do you notice that with each price change the intervals are always a minimum tick of .005? And then at the end of the day when you look at your daily candle of the USDX you see a closing price like 97.197. I want to shed some light on this topic of how the Intercontinental Exchange (ICE) settles the USDX each day.
Free WorkshopWith each Futures contract traded on any Futures Exchange, they each have their own unique contract specifications. One of the standardized specifications is something called a minimum tick increment. Unlike a Stock, all Futures contracts trade at their minimum tick increments as the smallest possible price change. No trading is allowed between the bid/ask price. This will make the bid/ask spread at a minimum .005 wide at any point during the trading session.
When the ICE settles the USDX daily they use a different minimum tick for the settlement time of .001 instead of the usual .005. This is why you see your daily candles with closes like 97.197 instead of 97.195 as one would expect with a minimum tick of .005.
But why do they do this?
First let’s describe what the USDX is. Simply put, the USDX is a weighted basket of six currency markets. The table shows the six currency markets and the individual weight they carry in the USDX.
The USDX is a physically deliverable Futures contract meaning a trader must be aware of First Notice and Last Trading days of the contract. Each point in the USDX is worth US $1,000.00. The minimum tick interval of .005 is worth US $5.00. To trade one USDX Futures contract overnight would currently require an initial margin (collateral given to broker to cover any losses while in the trade) of US $2,145 as of the recent increase March 26, 2015.
To find out the value of the USDX you simply take the last price on your screen and multiply it by the point value. For example, 97.135 X US$1,000 = US$97,135
Using leverage in the Futures markets allows you to control this US$97,135 contract for only US$2,145 per contract.
During the trading session the USDX can be rounded to the nearest .005 with each tick. Between 14:59 ET & 15:00 ET Monday – Friday the USDX has a closing range established during the last 1 minute before 15:00 ET. During this time a volume weighted average price (VWAP) is created. For each tick increment traded during this closing range the price that traded the most volume during this one minute period becomes the settlement price for the day.
Since this is a weighted basket of currencies each currency will have its individual settlement price from its respective Exchange it trades on. This settlement price is then multiplied by the percentage of weight it carries in the USDX. Then all six currencies are averaged into the USDX and in this averaging the ICE Exchange uses the .001 tick increment to get as close to the actual value of the weighted currencies in the USDX basket.
For this reason you will usually see your net change on the USDX each day looking like +/- .172 (or some value thereof coming off the previous settlement using .001) and not the usual +/- .015 (where each tick is .005).
I would invite you to visit the ICE Exchange and read more about the contract specifications for the USDX and become familiar with some of the different specifications you may not find in other popularly traded Futures markets.
“There are two ways of being rich. One is to have all you want, the other is to be satisfied with what you have”
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.