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Simple Ways to Buy Dollars

July 22, 2020 by Frank Kaberna| Tips & Strategies

The US dollar (USD) is in a bit of a downward spiral in recent trade as it closed lower yesterday for the thirteenth time in the last seventeen trading days. More than 6% off its highs of mid-March, USD has fallen at the hands of a few different characters that mainly include the Australian dollar (AUD), pound (GBP), and euro (EUR).

Foreign exchange (FX) markets are nuanced in a way that necessitates movement in one currency come at the expense of opposing movement in one or more other currencies. This can cause confusion in the seemingly simple process of buying or selling US dollars. For example, the Australian dollar has rallied more than 20% against USD since mid-March, while the Japanese yen (JPY) has moved higher by less than 5% against that same USD in the same period.

Chart - Aus. S, Pound, Euro, Can. $, Yen
Source: dxFeed Index Services (https://indexit.dxfeed.com)

Traders looking to these traditional FX products for their US dollar exposure have to both invert their assumption, meaning they must sell one of these examples to buy USD, and choose between several paths. Selling the Australian dollar looks like the best value for a long dollar play at the moment, but knowing that it was the weakest of the group to start the year might sway opinions. The Japanese yen looks like the calmest way to trade dollars, but, if the Bank of Japan returns to its active nature of just a few years ago, the yen can move wildly with no regard for USD’s status.

Trading Diversified USD

Futures products such as the Small US Dollar (/SFX) contract let traders act on their USD opinions in a straightforward manner that’s diversified against the group of five currencies above with the addition of the Chinese renminbi (CNY) and Mexican peso (MXN). The intricacies of foreign exchange can be condensed to a single price that moves higher and lower with sentiment in the US dollar.

Chart - Small Dollar \SFX
Source: dxFeed Index Services (https://indexit.dxfeed.com)

Adding Some Micro Flavor

After taking a long or short position on the broad USD market, traders can add an extra layer of creativity and specificity to their FX portfolio by either taking exposure to one of the seven currencies out of the trade or applying an extra emphasis on one of the currencies. /SFX’s small size and simple design makes it easy to expand dollar trades to the world of E-micro foreign exchange futures.

Traders can use these complementary futures products to hedge long dollar exposure, for example, by buying the weaker Japanese yen future (/MJY) to remove its short bias in the /SFX trade while creating a buy-buy pairs trade between two negatively correlated products. Conversely, those looking to attach an extra, more specific long dollar exposure to their Small US Dollar trade can sell the stronger Australian dollar future (/M6A), but keep in mind that this would add risk, not manage it. The current ratio of /SFX to E-micro foreign exchange futures is 1 unit to 1 unit.

Chart - Aus. $, Yen, Small Dollar
Source: dxFeed Index Services (https://indexit.dxfeed.com)

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Filed Under: Tips & Strategies

About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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