Managing Multiple Currency Balances in Your Trading Account

As electronic trading continues to grow in popularity, so does access to trade international futures products. U.S. based futures traders are likely familiar with the CME Group, Chicago Board Options Exchange and Interconnectional Exchange who manage a number of U.S exchanges. Granted U.S. based exchanges settle the day’s trades in the U.S. dollars. However, with futures exchanges spanning the entire globe, how does trading products that settle in foreign currencies impact a U.S. based futures trading account?

To demonstrate the concept of trading foreign exchanges, let’s examine a hypothetical trading account owned by Jane Smith with a balance of $50,000.

Traditionally, Jane has been trading the E-Mini S&P, however due to the lack of recent volatility, she explored applying her trading strategies to the FDAX, cleared via the Eurex Exchange. The FDAX settles in Euros, therefore any profit or loss accrued will be booked to her futures trading account in Euros.

Unfortunately, the FDAX was not kind to Jane and she lost €10,000. When Jane reviews her statement after the closing bell she noticed there is a debit of -€10,000 in addition to her $50,000 account balance. Because Jane traded a Euro based product, she has a new currency in her account.

This €10,000 debit is now subject to day to day fluctuations experienced by the EUR/USD price. Should the exchange rate increase, making it more expense to purchase one Euro via USD, Jane would experience a minor loss in her USD based trading account and vice versa.

While the short-term fluctuations experienced in a multi-currency trading account would likely be minimal, Jane could contact the NinjaTrader trade desk and request to convert her account balance to USD to avoid day to day balance variances.

Trading across international exchanges can open the door for traders to explore new markets, uncover tradable news or geopolitical events and more. However, as with any new trading initiative, it is imperative to do your due diligence and understand the associated intricacies.

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