Carley Garner guides us through Diversifying Currency Speculation with the U.S. Dollar Index

1. Diversify Currency Speculation
With the US Dollar Index

2. Who are we?
Carley Garner
1-866-790-TRADE (8723)
cgarner@decarleytrading.com
www.DeCarleyTrading.com
Twitter: @carleygarner
Facebook: DeCarley Trading
(http://www.facebook.com/decarleytradingcommoditybroker)

3. There is substantial risk of loss in
trading futures, options and FOREX!

4. Suggested reading…
Visit TradersPress.com for competitive
pricing!

5. What is the US Dollar Index?
• The “oddball” of currency futures
– Traded on the ICE Exchange
(InterContinentalExchange)
• The “only” diversified currency product
– The ETF of currency futures

6. What is the US Dollar Index?
• According to ICE:
– “Leading benchmark for the international
value of the U.S. Dollar and the world’s most
widely recognized currency index”

7. What is the US Dollar Index?
• Represents the value of the greenback
against a basket of currencies rather than
a single currency
• Diversified speculation
• Hedge currency risk of international stock and
bond portfolio
• Less volatile alternative to gold and silver

8. What is the US Dollar Index?

9. Why the US Dollar Index?
• One of the most underrated products on
the board?
– Often overlooked because it is different
• Not on CME
• Index, not single asset
– Humans migrate to comfortable, but what is
easy isn’t always best

10. Dollar Index Specs
• Symbol – IDX, EDX, DX (depending on platform)
• Contract value = $1,000 x index price
– @ 78.50 = $1,000 x 78.50 = $78,500
• Tick value = $10
– Minimum price change half tick
– Rally from 78.555 to 78.650 = 9.5 ticks or
$95
• Margin = $1,320 (subject to change)

11. DX mitigates country risk
Market Risk (macro) Country Risk (micro)
• Interest rate risk • Natural disasters specific
• Economic risk to particular country
– Yen and Japanese
earthquake
• Political/Central bank risk

12. Mitigate Micro Risks
• If your goal is to mitigate country risk, and
gain exposure to market risk (macro),
simply trade the DX outright
– Long or short position in USD vs. major global
currencies
• No need to construct similar FX holdings through
trading of multiple pairs
– KISS (Keep it Simple Stupid)

13. What is hedging?
• Trading a position in a like or similar asset
to reduce the risk of adverse move in
another asset
– Conventional use of term in FX is different:
• Holding both long and short positions in the same
pair in the same trading account
– No financial benefit to trader

14. “Hedging” Strategy in FOREX
• “Hedging” in FX isn’t hedging at all, it is
completely eliminating market risk on all
“hedged” contracts rather than simply
mitigating it. With risk elimination comes
elimination of profit potential.
– Equivalent to being flat!
– Banned by the NFA for U.S. clients
• Because only beneficial for brokers

15. Isolating Country Risk
• Take opposite position in DX than is being
held in FOREX pair to mitigate market risk
and focus on country specific risk
– Go long 100,000 units of EUR/USD
• Notional value $163,750 @ $1.3100
– Sell 1 US DX
• Notional value $80,000 @ 80.00
– Roughly 57% is made up of Euro ($45,600)

16. Result of 1 to 1 hedge
• Trader is net long about $118,150 worth
of Euro vs. $163,750
– Trader is also long the other major currencies
in various amounts vs. the U.S. Dollar
• Works toward mitigating macro global economic
risk
– Focus becomes micro (relationship between Euro and
Dollar)
– Eliminates some of the noise