The US Dollar Index

The US Dollar Index Futures Contracts are traded on the New York Board of Trade at Finex and at the Chicago Mercantile Exchange (CME). The US Dollar Index is widely quoted in the press and on quote services and is used by traders to get the big picture of the overall trend of the dollar. The Federal Reserve Board had introduced the US Dollar Index in 2003. The index is the result of the Smithsonian Agreement that had replaced the Bretton Woods Agreement. The US Dollar Index is similar to the Fed’s Dollar Index which is a trade weighted index. The Fed gives value to each individual currency in the index based on how much it trades with the US.However, the US Dollar Index and the Fed’s Dollar Index should not be confused with one another. The value of US Dollar Index and the Fed’s Dollar Index is different. The US Dollar Index futures contract expires on March, June, September and December. The minimum tick on the US Dollar Index is 0.1. One tick is equals $10.Delivery is physical and means that you receive dollars based on the value of the index. Delivery is made on the second business day during the month of the expiring contract prior to the third Wednesday. The overall value of the futures contract on the index is 1,000 times the value of the index in dollars. Suppose the value of the index is 80. It’s value in dollars will be $ 8,000.No trading limits are placed on the US Dollar Index. Trading hours are from 8.05 AM to 3:00 PM. There is overnight trading also from 7 PM to 10 PM. Delivery day of the US Dollar Index Futures Contract is the third Wednesday of the contract month. The US Dollar Index was modified at the inception of the Euro. It is weighted in a way that’s similar to the Fed’s trade weighted index as follows: Highest percentage is for Euro 57.6%, second highest is Japanese Yen 13.6%, third highest is Great Britain Pound 11.9%, then comes Canadian Dollar 9.1%, Swedish Krona 4.2% and Swiss Franc 3.6%. The US Dollar Index is best used as an indicator of trends in the forex market.However, you must keep this in your mind that as compared to trading currencies, the US Dollar Index is not a good trading vehicle. The best way to trade the index is by using the currency mutual funds. There are a few good currency mutual funds that you can find. You should know that one of the secrets of knowing trading success is understanding what kind of personality you have. You should know whether you are weak nerved or strong nerved.If you are weak nerved than spot forex market is not for you! Suppose you fear that the market will move against you. You are afraid of taking a bathroom break or even a coffee for that matter. You can’t even blink your eye afraid that you will end up with a margin call. In such a case you need to invest in currency mutual funds based on US Dollar Index and relax. You can avoid a big part of the risk involved in trading spot currency market by trading currency mutual funds. You can have a pretty good idea as to how your fund is going to close at the end of the day if you check the dollar index a few times during the day. This will smooth your nerves and make you relax. If trading makes you tense and nervous, you should think about doing something else. Maybe trading is not for you.