Stocks and Commodities Magazine

What to Know When Trading Foreign Futures in a U.S. Futures Account

I’m interested in trading foreign futures in an account held at a U.S. brokerage firm; what should I be aware of?

Most U.S. brokerage firms offer their clients access to foreign futures and options. If your broker doesn’t, you should reconsider where you house your commodity trading account. Even if you don’t intend to trade foreign markets, the fact that they are offering you limited product access is a telltale sign of a brokerage that simply isn’t equipped to specialize in commodity trading. Perhaps their focus is in stocks or FX, but it isn’t futures.

Some of the most popular foreign futures contracts are the German DAX (a stock index futures contract), the German Bunds (sovereign debt futures), and canola oil (AKA rape seed traded on the ICE Canada exchange).

Trading in foreign products can complicate the accounting on your brokerage statements because such products are not traded in U.S. dollars, as contracts on domestic exchanges are. Instead, they are valued and traded in the designated currency in which the exchange is located. For instance, those buying or selling the DAX futures are not making or losing U.S. dollars on each trade; instead, they are accumulating profits and losses in Euros. Similarly, if you buy and sell a canola futures contract your profit and loss will be calculated in Canadian dollars. In other words, upon exit of the position your account will either be credited or debited “loonies”.

Brokerage firms will typically give you the green light to trade foreign products in your account despite the fact that you are holding U.S. dollars on deposit for margin. Once you do, your account will no longer be valued in a single currency. Your brokerage statement will display the current U.S. dollar balance along with the balance of any other currency resulting from trades executed in foreign markets.

 

Continue reading about products you can trade with U.S. brokerage firms in the December 2013 Stocks & Commodities Magazine.

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