Combining FX with Futures

Course 59 of 60 in the forex hub. What happens when you add a 6E or an M6E to a spot EUR/USD position: sometimes you're adding to the bet, sometimes you're offsetting part of it, and sometimes you'd be better off staying in spot.

A spot position plus a euro future

At a dealer you type in whatever euro size you like. A 6E future is the same exchange rate in a fixed size: 125,000 euros, quoted in dollars per euro, with a minimum tick of 0.00005 worth $6.25. The micro, M6E, is 12,500 euros, and its tick is worth $1.25. Ten micros make one standard contract, and neither one shrinks to match the lot you typed.

The usual mistake is adding the future in the same direction as the spot position and calling it a hedge. Before you place that second ticket, write down your total in euros. The full contract specs live in the futures course. What worries me is the spot account that's about to get a second statement next to it.

Opposite sides only offset matching euros

A future on the opposite side only offsets the euros it actually covers. Four short M6E come to 4 x 12,500 = 50,000 euros, which matches a 50,000-euro spot long. One short 6E doesn't: 50,000 - 125,000 leaves you net short 75,000 euros, which is a new position whatever you meant it to be.

You'll also have two sets of margin. The dealer wants a security deposit on the spot, the futures broker wants margin on the contracts, and neither can see the other account. The margin calculator handles the forex side, so add the futures margin yourself.

Same direction adds to the bet

If both legs are on the same side, you've simply made the position bigger. One long micro on top of a spot long is a larger long.

50,000 + 12,500 = 62,500 euros. Spot: 50,000 x 0.0030 = $150. Micro: 12,500 x 0.0030 = $37.50, and 0.0030 / 0.0001 = 30 ticks x $1.25 = $37.50. Together: $187.50.

If that total is already past your loss limit, don't add the micro. One 6E is a much bigger add, and the week further down shows what it does. Add the spot dollars and the futures dollars together yourself, because neither platform will do it for you.

Matching euros still leaves a gap

Matching the euro amounts doesn't lock in the dollars. The dealer's price and the futures price aren't the same, and the difference between them can move while you hold both. What's left over is that gap, the overnight swap on the spot side, and contracts that expire.

Leave either a 6E or an M6E on past its last trade date and it goes to physical delivery. Spot has no date like that. When you roll the future the price changes, so rewrite your euro total that week. I write the gap down when both legs go on and check it when they come off. If the gap cost more than the number I allowed, that was the real trade.

Two clocks

The futures leg runs on Globex hours: open from Sunday at 5:00 p.m. Central, down for an hour from 4:00 to 5:00 p.m. Monday through Thursday, and closed from Friday's 4:00 p.m. until Sunday. Your dealer keeps its own hours. A resting futures order does nothing during the break or over the weekend, so if the dealer is still open then, only your spot leg is live.

It can go the other way too, with the dealer closed and Globex trading. Check your dealer's hours on its own website instead of assuming they match the exchange.

One euro total, once a week

Once a week, write one line: spot euros, plus 125,000 for each standard contract, plus 12,500 for each micro, with shorts counted as negatives. If that sum is bigger than the euros you meant to hold, close one of the legs.

Do it before the weekend, while you can still change something. The weekend and holiday lesson goes through both clocks. On a roll week, rewrite the line the day you roll.

When spot is enough

Stay with spot when the euros you want come to less than one micro, when you don't want delivery or a quarterly expiry, or when you know you won't open the second statement. Keeping the spot and buying the micro just turns your plan into a bigger one.

Don't add the future because its chart looks like EUR/USD. Of course it does; it's the same exchange rate. And don't treat one 6E like a small dealer lot, ignore the afternoon break, or roll the future and forget the spot is still there. The durable-process lesson is about building exactly that kind of habit: a written net position and a set time to check it.

A flat week that turns into a big position

Monday, the spot long is inside your limit. Tuesday, you sell matching micros and your net goes to zero, though the gap, the swap and the expiry are all still there.

Wednesday, you buy the micros back and add one 6E because the chart looks the same. That's 50,000 + 125,000 = 175,000 euros long, and a 0.0030 move is now worth $525. The 6E piece alone is 60 ticks at $6.25, or $375. Thursday's job is getting the line back inside your limit.

Before the second ticket

• Same side adds. Opposite sides offset only matching euros.
• A match still leaves the gap, the swap and the expiry.
• Write one net euro line each week, before the weekend.
• If you won't read the second statement, don't open the futures leg.

Write the new euro total before you add the future, and skip the add if it breaks your limit. Educational only. Not a recommendation to buy, sell, or hold any contract or pair.