Dollars and Sense: Calculating Profit and Loss in Currency Futures


An Up and Coming Currency Futures Contract

Mexican Peso Futures

In the past the Mexican Peso futures contract offered questionable liquidity and few opportunities for speculators. However, the Peso has become much more popular among speculators and is worth taking a look at. Like the British Pound futures and the “commodity currencies”, the contract specifications for the Peso differ greatly from the norm.

If you have ever traveled to Mexico, you are aware that the valuation of the Peso is much lower than that of the dollar, typically about a 10th of a U.S. Dollar. Thus, it takes a small percentage of a dollar to buy one Peso. For this reason, the CME opted for a contract size of
500,000 which is a great deal bigger than those assigned to the Euro or the Swiss Franc futures. Each point in the Peso is equivalent to a $5 gain or loss for any trader with an open futures position.

Also unique to the Peso is the expiration months. The Peso has a contract listed (that expires in) each month as far as 13 months in advance. This is the only currency that allows traders to trade contracts expiring in each and every month of the year, they typically have quarterly expiration months. However, it takes more than an exchange simply listing a contract for speculators and hedgers to get involved. In fact, there is often very little, if any, open interest in any of the non-quarterly contracts (January, February, April, etc.). In other words, you should only trade the March, June, September, and December Mexican Peso futures contracts!

Despite all of the differences in the Peso relative to the other currencies, the calculations involved in trading it are very similar. Like the others you would simply take the difference between the purchase price and the sale price and multiply it by the tick value to reach the total profit or loss on a trade.
A trader that sells the Mexican Peso at .076425 and is forced to buy it back at a loss at .077385 would have realized a loss of 96 points or $480.

.077385 - .076425 = 96 loss

96 x $5 = - $480 commissions and fees add to the loss


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