Euro FX Futures Explained (EUR/USD) – Trading Strategies Analysis | Symbols and Contract Specifications (2024)

Not to be confused with theEurodollar futures,which is an interest rate futures product, the Euro FX futures is a currencyfutures contractand obviously one of the widely traded in the currencyfutures market. It allows traders to bet on the value of the euro against the U.S. dollars and also manage their exposure in the European markets.

The Euro FX futures contract is a currency futures contract in which the underlying asset is the euro, and the pricing is based on the expected exchange rate of the euro against the U.S. dollar in the future. Thus, the Euro FX futures is an exchange-traded contract, which represents an agreement to receive or deliver the specified amount of euros on a future date, at an already agreed exchange rate.

The euro was introduced in January 1999 as the official currency of the Eurozone, which consists of 19 of the 28 member states of the European Union. It is issued and regulated by the European Central Bank (ECB). The euro is the official currency of all the institutions of the EU. It is also used by some European states that are non-EU members. As of 2019, about 343 million citizens of the Eurozone make use of the currency on a daily basis.

With more than €1.2 trillion in circulation as of August 2018, the euro has, by far, exceeded the U.S. dollar in world circulation. It is the second most-traded currency in the world and the second-largest reserve currency after the U.S. dollar.

What Are Euro FX Futures?

The Euro FX future is a currency futures contract in which the underlying asset is the euro, and the pricing is based on the expected exchange rate of the euro against the U.S. dollar in the future. Thus, the Euro FX futures is an exchange-traded contract, which represents an agreement to receive or deliver the specified amount of euros on a future date, at an already agreed exchange rate.

As with other futures contracts, the Euro FX futures contract is a leveraged instrument. Thus, a trader only needs to deposit a portion of the total worth of the contract. The minimum amount required to carry a futures contract is known as the margin, and the value varies with the exchanges, market conditions, contract expiration, and contract types (full, mini, or micro contract).

The contract is marked to market, so at the end of every trading day, the profits and losses made on that day are credited accordingly to the traders’ accounts. 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 Euro FX futures, you need to create an account with the exchange through a futures broker and deposit the required margin. Since it is a leveraged instrument, you need not have the full dollar worth of the contract to start. However, be cautious about futures trading — while it can easily make you money, you can also lose more than you invested.

Why Trade Euro FX Futures?

There are different reasons traders play the Euro FX futures market, such as the following:

Speculation: The majority of traders in the currency futures market are speculators, and the Euro FX futures is one of the most liquid currency futures.

Hedging: The Euro FX futures are usually used as a risk management tool by investors, fund managers, and business people who are exposed to exchange rate risks in the European markets.

Arbitrage trading: Some traders may simultaneously buy and sell the Euro FX contracts on different platforms to benefit from any imbalance in prices.

How Euro FX Futures Trade

The Euro FX futures contracts trade on the Chicago Mercantile Exchange (CME) Group and the Eurex Exchange. 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 next day, with a one-hour break each day.

On the CME platform, one Euro FX futures full contract settles for 125,000 euros. The price quotation is in U.S. dollars per euro to five decimal places, and the minimum price fluctuation is as follows:

• Outright fluctuation — $0.00005 per euro increment or $6.25 per contract
• Consecutive months spread — $0.00001 per euro increment or $1.25 per contract
• All other spread combinations — $0.00002 per euro increment or $2.50 per contract

Apart from the full contract, the CME also offers other types of Euro FX futures contracts — mini and micro contracts. The Euro FX mini contract settles for 62,500 euros, while the micro contract settles for 12,500 euros. For the full contracts, quarterly contracts (March, June, September, and December) are listed for the 20 consecutive quarters and serial contracts listed for three consecutive months.

Trading terminates at 9:16 a.m. CT on the second business day immediately preceding 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 euros, which 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.

Euro FX Futures Trading Strategies

One great way to reduce the overall risk of a portfolio is to trade trading strategies in more markets. The euro FX futures market is a market that we have many trading strategies for ourselves, that we trade actively. And while it’s not the easiest market to find good trading strategies on, you definitely can find good strategies if you just put in the work that’s needed!

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Euro FX Futures Seasonality

Here is a seasonal chart of the Euro FX futures market:

Source

Factors that Affect Euro FX Futures

Many factors, both fundamental and technical, can affect the Euro FX futures, but we will focus on the fundamental factors, which include economic reports and political events.

Economic reports: Here are the reports with the highest impact on the Euro FX futures market:

• Monetary policy reports, including interest rates and policy statements, from the ECB and the U.S. Fed
• 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
• Sentiment reports, such as the German Zew Economic Sentiment Index

Political events: Important political events, such as elections (especially in the US, Germany, and France) and referendums (Brexit vote), do have significant effects on the British pound futures.

Conclusion

The Euro FX futures provides traders with the opportunity to speculate on the euro exchange rate, as well as offers investors and business people a way to hedge their exchange rate-dependent obligations in the European markets. It is offered on the CME Group and the Eurex.

Here is our archivewith articles about other tradeable futures markets.

FAQ

How Does Euro FX Futures Trading Work?

Euro FX futures trading involves buying or selling contracts representing a leveraged agreement on future euro exchange rates. Traders deposit a portion of the total contract worth as margin. Profits and losses are marked to market daily, and traders falling below the maintenance margin must top up their accounts.

Where Do Euro FX Futures Trade?

Euro FX futures contracts trade on exchanges like the Chicago Mercantile Exchange (CME) Group and the Eurex Exchange. The Globex electronic trading platforms allow trading from any part of the world. On the CME platform, one Euro FX futures full contract settles for 125,000 euros. Additionally, the CME offers mini and micro contracts settling for 62,500 euros and 12,500 euros, respectively.

What Factors Affect Euro FX Futures?

Economic reports and political events are major factors affecting Euro FX futures. Reports such as interest rates, inflation, GDP, and sentiment indices can impact prices. Political events, elections, and referendums also contribute to volatility.