Celebrating 50 Years of Financial FuturesThis is a Thanksgiving Special Report.
Swiss Franc ( CME:6S1! ), Canadian Dollar ( CME:6C1! ), Japanese Yen ( CME:6J1! ), British Pound ( CME:6B1! ), Mexican Peso ( CME:6M1! )
In May 1972, International Monetary Market (IMM), a division of the Chicago Mercantile Exchange (CME), launched futures contracts on seven currency pairs. This was the world’s first financial futures instrument, a futures contract based on something other than physical commodities.
What has made a Midwestern Exchange, known mainly for its Pork Bellies contract, a frontrunner in financial innovation?
Bretton Woods System and its Collapse
At the end of World War II, the United States and its allies created the Bretton Woods System. Essentially, it was a global monetary system governed by fixed currency exchange rates. The US dollar was backed by gold, at a fixed rate of $35 per troy ounce. Other currencies were pegged to the U.S. dollar. In 1955, one dollar was exchanged for 0.3572 British Pound, 4.2 Deutsch Mark, 3.3 France Franc, 0.986 Canadian Dollar, 360 Japanese Yen, 625 Italy Lire, etc.
Each country was responsible for maintaining its exchange rate within 1% of the adopted par value by buying or selling foreign reserves when necessary. The U.S. was responsible for maintaining the gold parity. Its big commitment was allowing anyone with $35 to exchange for an ounce of gold at the US Treasury window.
As global inflation rose sharply in the 1970s, many countries could not maintain the official peg. They responded by redeeming dollars for gold at the US Treasury window.
With US gold reserve depleting rapidly and a gold run looming, in August 1971, President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold. This marked the breakdown of the Bretton Woods. Central banks around the world were no longer obligated to peg their exchange rates to the US dollar.
Leo Melamed and Milton Friedman
With fixed rates, there was no exchange rate risk in international trade. However, flowing rate exposes importers and exporters to significant uncertainty to the amount of dollar or foreign currency they will receive or are obliged to pay for.
Since its founding in 1898, CME has been the place where producers, processors, merchants, and commercial users come together to hedge price risks for a wide range of commodities. Leo Melamed, then Chairman of the CME, was convinced that the futures market is the solution to tackle the rise in exchange rate volatility.
Leo set up an International Monetary Market division within the CME and prepared for new futures contracts derived from foreign exchange rates. Initially, this breakthrough idea found no friends on Wall Street. According to Leo, one investment bank president tossed it out saying he didn’t want the Chicago “Pork Belly Shooters” to contaminate the FX market.
Leo met with Milton Friedman, a well-respected economics professor at the University of Chicago. Milton fully supported the ingenious design and published a feasibility study, “The Need for Futures Markets in Currencies” in 1971.
Milton Friedman (1912-2006) won the Nobel Prize in Economic Science “for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy” (the Nobel Committee).
This changed everything. When Leo went to Washington to lobby the idea of listing foreign exchange futures, Treasury Secretary George Shultz said, “If it’s good enough for Milton, it is good enough for me.”
George Shultz (1920-2021) served as Secretary of State in the Regan Administration and as Treasury and Labor Secretary under Richard Nixon. He was also the Dean of Graduate School at the University of Chicago, and a good friend with Milton Friedman.
If you are interested in the story of FX futures, you may find it online and at Leo’s 1996 memoirs, “Escape to the Futures”.
Foreign Exchange Futures
On May 16, 1972, IMM simultaneously launched seven futures contracts based on the US dollar exchange rates to British Pound ( CME:6B1! ), Japanese Yen ( CME:6J1! ), Canadian Dollar ( CME:6C1! ), Swiss Franc ( CME:6S1! ), Mexican Peso ( CME:6M1! ), Deutsch Mark and Italy Lira.
Five of those original FX contracts are still actively trading at the CME. Deutsch Mark and the Lira have been delisted since Germany and Italy joined the Euro currency. The new contract, Euro/USD FX ( CME:6E1! ), becomes the most active CME FX future contract.
FX contracts saw exponential growth in trading volume in the next fifty years. In the first 9 months of 2022, average daily volume for all FX futures and options reached 983,000 lots, according to the CME Group. On November 15th, Euro FX alone traded 359,000 lots and had an open interest of 683,293 contracts.
My writings on TradingView include a number of trade ideas on FX futures contracts. Please take a look if you haven't yet.
FX Futures were the start of a “Financial Revolution” in the futures industry. The next few years saw new breeds of futures contracts, including interest rate futures between 1975 and1977 and equity index futures in 1982.
During the holiday season, I would start a series on the leaders and innovators at CME, CBOT and KCBT. They brought GNMA Futures, T-Bill and T-Bond Futures, Eurodollar Futures, Value-Line Index Futures and S&P 500 Futures to life and revolutionize the financial derivatives world as we know it today.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
Eurousd
Global events - the last 18 Months. I recently posted a timeline of Bitcoin events as well as record several videos on the current Elliott Wave moves around Bitcoin, DXY and a few Forex pairs.
Here’s a link to the Bitcoin timeline;
Looking back at the last 18 months or so now, I wanted to cover some of the significant events that have taken place, which would have had some (but not as much as you think) of an effect on the Elliott counts as a whole. For those of you not familiar with Elliott, there is a link in the ‘related ideas’ section covering the basics.
So, let’s go back in time;
Brexit announced back in 2016 – carried through and completed in 2020.
Thus, kicking off the year with a fair size event, the global markets not quite sure what the fall out would be, where the damage would come and of course if there where to be profitable positions to obtain. An awful lot of hesitation & fear seen in the market.
Jump forward to the next big event; although COVID-19 was technically pre 2020, the real effects did not start to emerge until early 2020 when the world went into LOCKDOWNS, crazy mayhem soon followed and has not really disappeared since.
After the world starts to go mad! A few other things happen during this period!
- Oil goes negative for the first time in HISTORY
- Gold hits $2,000
- S&P creates an all-time high
If this was not enough to cause global confusion, we also had an interesting period in the United States.
All though there are plenty of other events that have shaped this last 18 months or so, you can clearly see with so much – the charts will be a little more sporadic, a little harder to read. So, although methods such as Elliott and Wyckoff are still very powerful.
Even Wyckoff Schematics got a good run in the social media platforms! (Probably kicked that off in March) 😉
Interesting times ahead - @TradingView community, take care of yourself and keep in mind! It’s been a crazy 18-months, 2 years!
**(This is not a trade idea, even a bias - it's just highlighting how insane these last 18-months have been)
For education on Wyckoff and Elliott - see my bio below;
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
BTC VS EURO DOLLAR Even though I am long term Bullish COINBASE:BTCUSD , I'm always open to other short term outcomes....
COINBASE:BTCUSD vs FX:EURUSD
IF YOU LIKE MY CHARTS PLEASE HIT THE LIKE AND FOLLOW BUTTON!
How to trade EUR/USD on the Daily Timeframe [FULL EXPLANATION]Trading EUR/USD on the Daily Time Frame: Delete the noise, patience wins
Here I present a textbook trading set-up + a fancy little indicator known as the EAG Yume Wave.
First we need to set up our parameters, what is confirmation and what isn't?
Your analysis does not need to be over complicated, you want to be considering the key/strongest variables when you are creating your final equation. You can backtest multiple indicators, I usually play around with ichi, different MAs and a couple of momentum indicators and the RSI to see if I can make anything work.
Here are my personal EURO/USD Daily TF Trade Parameters and WHY I have chosen them~
185 EMA
This has acted as a really good measure of resistance all the way through EUR/USD's last few months. To find this I played about with the settings.
Fibonacci lines and extension
These allow me to see all the individual lines to trade from and where my points of confirmation will be when a fib line gets broke.
Trend lines and horizontal support & res
Important textbook trading skills that should line up with my other indicators and fiblines.
EAG YUME WAVE Indicator
Watching for the twist and then watching for if the Miaku can provide support on the downfall.
Volume + MA
Volume in traditional markets can help us confirm where potential bottoms are with good buy backs.
Do bear in mind there is the risk of a volume divergence hence why I am neither bullish nor bearish UNTIL we get some form of confirmation!
If you learnt something or just want a chat about how I trade add me on Discord: Xander#5055
A follow and a like would be greatly appreciated for my time :D
~Xander
