Deutsche Bank
Corporate & Investment Bank
FX Indices on Autobahn™
Trade a currency
Why trade FX Indices?
Why should you care about Deutsche Bank FX Indices?
Clients often have a single currency view that they want to
express in the simplest way possible. This is where tradeweighted indices come in - let the central bank decide
what the most relevant measure of the currency’s strength
is - and trade that!
What is a trade-weighted index?
A trade-weighted index (TWI) is designed by central banks
to measure the strength of their currencies on the world
stage in terms of international trade-competitiveness.
Central banks take into account countries they import from,
countries they export to and also countries they compete
with for trade in third party markets. This makes it the most
representative measure of a currency’s strength.
What type of clients does it appeal to?
Institutional investors use the indices to express a view on
the strength of a particular currency. For instance, selling
EURTWI to speculate on broad EUR weakness due to the
sovereign debt crisis is an effective way to express this
macro view. The low volatility of the index also means it’s
cheaper to buy options on TWIs.
Retail clients want a product where they can trade a
single currency view. They don’t necessarily have a strong
opinion on which other currency to trade against; they just
want to trade it against the most ‘relevant’ basket of other
currencies. They leave the choice of that basket to the
respective central bank.
Central banks are also interested in hedging their exposure
to their foreign exchange reserves typically based in USD.
So, for example, a USDTWI put option would protect
against excessive USD weakness against the other major
currencies in a cheap and diversified way.
USDTWI captures broad USD strength
Where can I see live prices?
The live prices from Autobahn™ are streamed to Reuters™
page FXINDEX and Bloomberg™ page FXIN.
FXIN page on Bloomberg™
Can I graph the indices?
On Bloomberg™ all tickers can be plotted. For example, the
spot rate for EURFXI has the ticker TWI EUSP Index<Go>
and the front contract has the ticker TWI EUC1 Index<Go>
(turnover for details of how to trade this contract).
What is the key advantage of trading TWIs?
Trading TWIs makes capturing macro currency trends
easier as they are less susceptible to the idiosyncratic
moves of a specific currency pair.
For example, you can see from the picture of USDTWI
spot (above, right) and its components that trading a
bullish USD view over a one week period via USDEUR
would have resulted in a loss, whereas the USDTWI
captured the underlying USD strength and would have
resulted in a profit.
EURTWI Spot plotted on Bloomberg™
How to trade FX Indices
How are the indices traded?
What is liquidity like?
The indices trade as OTC forward contracts to the next
quarterly IMM date (MAR,JUN,SEP,DEC). The IMM week
is the week containing the third Wednesday of the month.
The contracts expire on the Monday of the IMM week and
cash settle on the Wednesday of the IMM week.
Liquidity is derived from the liquidity of the underlying
spot market. The maximum tradeable amount at the
moment has been capped at 30-50mio USD worth but this
can be increased on demand.
If you buy 1 contract of EURTWI IMM1 forward at 130.00
and later sell it for 130.01, you’ll have made 10EUR. The
IMM1 forward is always the first quarterly IMM date and
it is published to Bloomberg™ as ticker TWI EUC1 Index
<Go>.
If a client wishes to roll their position from the expiring
near contract to the next one then he or she can do this
at a tight spread by calling the sales desk.
What are the FX Indices on Autobahn™?
Most of the indices on Autobahn™ are trade-weighted
indices on G10 currencies. So, for example, in the Index
Liquidity Window in Autobahn™, the code EURFXI
corresponds to the trade-weighted index for the Euro.
What’s the notional amount of 1 contract?
1000 multiplied by the index level (in the index currency).
This is because each contract pays 10 of the underlying
index currency per pip (0.01).
So 1 contract of EURFXI at 128.00 represents 128k EUR. 1
contract of JPYFXI at 135.50 represents 135.5k JPY.
Can I see the notional amount in Autobahn™?
In Autobahn™, the equivalent notional amount is shown in
the index currency when a number of contracts is entered.
By clicking on the currency code, this can be flipped from
the natural currency of the index to USD or EUR amounts.
How are the indices rolled?
How can clients book them?
The simplest way is to book them as forwards or NDFs.
You can then mark to market based on the Reuters™ or
Bloomberg™ feeds for the relevant contract.
Can I trade options on TWIs?
Yes, we can trade vanillas and exotics on TWIs.
Ask your sales representative for a price or trade ideas.
Miscellaneous
What’s the difference between DXY and USDTWI?
DXY is the branded USD Index that trades as futures
on ICE US. DXY is a trade-weighted index which was
constructed in 1973 and has not changed weights since.
USDTWI on the other hand is the same basket but has
had its weights rebalanced over time to represent the
changing dynamics of world trade.
The relevant metric of USD strength in 1973 was the DXY,
the relevant metric today is the USDTWI. DXY is very
popular however as it trades technically with many market
participants looking at key levels in this particular USD
index. Both DXY and USDTWI are tradable on Autobahn™
(as DXYFXI and USDFXI respectively).
How are the indices rebalanced?
Index trading interface in Autobahn™
Is the pricing robust?
The index prices are calculated within Autobahn™ itself.
The prices will therefore be as robust as the component
spots and forwards that make up the index. We provide
pricing 24hrs a day and the stability of our Autobahn™
platform is market leading.
Once a year the tradeable indices are rebalanced to
represent changes in the underlying central bank’s index.
This rebalancing is outsourced to iboxxFX which is a
subsidiary of Markit. This makes the rebalancing process
both transparent and independent. For more information,
see www.iboxxFX.com.
Contact your local Deutsche Bank sales team
or email [email protected] for more information
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