Canadian Dollar Trading Strategy (Backtest And Futures Example)

Last Updated on May 27, 2023

One of the 8 most popularly traded currencies in the world, the Canadian dollar (aka the loonie) accounts for about 2 percent of all global reserve currencies and is the fifth most-held reserve currency in the world, after the U.S. dollar, the euro, the British pound, and the yen. It was established in 1871 by the Canadian Parliament and issued by the Bank of Canada. It has been floated since 1970, and its futures contracts are quite popular among futures traders.

The Canadian dollar futures is a futures contract whose underlying is the Canadian dollar. The contract is an agreement to receive or deliver the specified amount of Canadian dollars on a future date, at an already agreed exchange rate. Its pricing is based on the CAD/USD exchange rate, and it is settled by delivery of the underlying. The Canadian dollar futures strategy refers to the methodologies and techniques for trading the futures contract.

In this post, we answer some questions about the Canadian dollar futures strategy, and we show you how co can backtest the Canadian dollar..

What are Canadian dollar futures?

The Canadian dollar futures is a futures contract whose underlying is the Canadian dollar. A futures contract is an agreement to receive or deliver the specified amount of the underlying on a future date, at an already agreed exchange rate.

The pricing of the Canadian dollar futures is based on the CAD/USD exchange rate, and it is settled by delivery of the underlying. This contract allows traders to take a position on the value of the CAD against the USD.

What is a Canadian dollar futures strategy?

This refers to the methodologies and techniques for trading this futures contract to make profits. It includes the strategies a trader uses for market timing, leverage and position sizing, risk management, and other trade management techniques.

It is important to have a robust trading strategy if you want to trade futures with any success. The strategy must have precise entry and exit signals and risk management methods.

Canadian dollar futures strategy backtest

A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.

What is the seasonality of Canadian dollar futures?

In financial trading, seasonality refers to the tendency of a security’s price to move in a fairly predictable way during certain periods of the year. In most cases, the periods we refer to are the various months of the year.

The Canadian dollar has been noted to perform better against the USD during the months of June, July, and December, as people convert their USD to local currencies for the Summer and Christmas holidays. The CAD performs poorly during the months of January, February, and March, as you can see in the chart below:

Canadian dollar futures strategy
Source: Seasonalcharts.com

What moves the Canadian dollar What affects the Canadian dollar the most?

The key factors that affect the movement of the Canadian dollar against the US dollar can be grouped into economic factors and political events. The most important economic reports for the CAD are reports about the balance of payments, such as current account and trade balance reports, the U.S. Energy Information Administration (EIA)’s Natural Gas Storage Report, Global Crude Oil Inventory, and Commodity prices, especially crude oil.

Other economic factors are monetary rate reports (interest rates and policy statements) from the Bank of Canada and the Fed, inflation reports (consumer price index and the producers’ price index), growth data (GDP, manufacturing PMI, services PMI, and retail sales), and job reports (Nonfarm payroll in the US). Political events in both countries, such as elections, can also move the market.

How are Canadian dollar futures traded?

The Canadian dollar futures contracts are traded on the CME Group’s futures exchange. The contract trades from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break at the end of each day, and it can be traded from any part of the world through CME’s Globex electronic platform.

On the platform, one Canadian dollar futures full contract is equivalent to 100,000 Canadian dollars, and the contracts come in quarterly cycles of Mar, Jun, Sep, and Dec, with 20 listed contracts. Settlement is by delivery method, and the last trading day is the business day (usually Tuesdays) immediately preceding the third Wednesday of the contract month.

How do you start trading Canadian dollar futures?

You trade the contract through a futures broker, which can grant you access to the exchange where the CAD/USD futures contract trades. To start trading, you have to register with a futures broker and fund your account.

You can also trade the CFD of futures contracts via an online CFD broker, such as IG. A CFD contract is a contract that exchanges the price difference between the opening and closing of a trade. It enables you to trade price fluctuations without having to worry about the asset’s delivery issues involved in direct futures trading. IG offers CFDs on futures.

What is the Canadian dollar trading at?

As of November 23rd, 2022, the CAD futures were trading at $0.7471 per CAD.

Note that the price changes from time to time, so what is quoted here may not be the price it would be trading when you are reading this post. You can click on any of the links to get the real-time price on the CME platform or directly from TradingView.

What’s the Canadian dollar futures hour?

The Canadian dollar futures trades on the CME Globex electronic platform from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day. As each trading day ends by 4:00 pm, there is a one-hour break before the start of the next trading day.

For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 4:15 pm CT. There is a 45–minute break each day beginning at 4:15 pm.

Where can I find trading charts?

You can find the trading chart on any trading platform you are using if the platform offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.

A more common option is TradingView, which offers free access to charts of different instruments. However, to connect to your broker, you have to subscribe to the Pro services. You can also access the TradingView chart via the CME platform.

What are the trading symbols for Canadian dollar futures?

There are two contract specifications for Canadian dollar futures on the CME’s Globex platform: the full contract and the micro contract. The full contract’s trading symbol is 6CZ2, while the micro contract’s symbol is MCDZ2. The product code on CME ClearPort is C1.

What is the specification for the Canadian dollar futures contract?

For the full contract size, one contract of CAD futures is equivalent to 100,000 Canadian dollars. The USD value of the contract is gotten by multiplying it by the dollar exchange rate. The price quotation is in U.S. dollars and cents per CAD increment. For the micro contract, the contract size is 10,000 Canadian dollars.

There are twenty months listed contracts with quarterly cycles (Mar, Jun, Sep, Dec). Settlement is by delivery method, and the last trading day is one business day (usually Monday) before the third Wednesday of the contract month.

Why should you start trading Canadian dollar futures?

The most common reason for trading Canadian dollar futures is to hedge foreign exchange risks associated with international business transactions. However, as traders, the main reason we trade futures is to profit by speculating on price fluctuations.

It may also be possible to buy and sell the CAD contract on different platforms at the same time in order to profit from price imbalances — a method known as arbitrage trading.

What is the contract size?

For the full or standard contract size of the Canadian dollar futures, one contract is equivalent to 100,000 Canadian dollars. To get the USD value of the contract, you multiply it by the CAD/USD exchange rate. For example, with the CAD/USD exchange rate at 0.7471, the USD value of one full contract of the Canadian dollar future would be 100,000 x 0.7471 = $74,710

For the micro contract, the contract size is 10,000 Canadian dollars. So, the USD value would be 10,000 x 0.7471 = $7,471

What is the tick size?

The tick size is the USD worth of the minimum fluctuation. For one full contract of the Canadian dollar futures, the tick size is $10 per tick per contract on CME ClearPort and $5 on the Globex platform. For the micro contract size, the tick size is $1.00.

What is the minimum price fluctuation for Canadian dollar futures?

On the Globex platform, the minimum fluctuation is 0.00005 per CAD increment (equivalent to $5.00 per contract tick size). The consecutive months spread is $0.00001 per CAD or $1.00 per contract, while all other spread combinations use 0.00002 per CAD or $2.00 per contract. On CME ClearPort, the minimum fluctuation is 0.0001 per CAD, which is equivalent to $10 per full contract size.

Are there any ETFs?

Yes, there is a Canadian dollar ETF that trades on the US stock exchange — Invesco CurrencyShares Canadian Dollar Trust (FXC). The fund offers exposure to the Canadian dollar relative to the US dollar, as it increases in value when the CAD strengthens and declines when the USD appreciates. You can use the ETF to hedge exchange rate exposure or bet against the US dollar.

What factors affect Canadian dollar prices?

They include the balance of payments, such as current account and trade balance reports, the U.S. Energy Information Administration (EIA)’s Natural Gas Storage Report, Global Crude Oil Inventory, and Commodity prices, especially crude oil. There are also monetary rate reports (interest rates and policy statements), inflation reports (consumer price index and the producers’ price index), and growth data (GDP, manufacturing PMI, services PMI, and retail sales). Political events, such as elections, can also move the market.

What is the all-time high for Canadian dollar futures?

According to data from TradingView, the highest the Canadian dollar has ever reached is $1.10395, which it achieved in November 2007. But the CAD futures chart started from 2011, and the highest since 2011 is $1.059, achieved in July 2011.

What are the biggest risks in trading Canadian dollar futures?

When trading futures, including Canadian dollar futures, the biggest risk is from adverse price movement. Because it is a leveraged instrument, the losses are calculated using the actual value of the contract size traded. So, if you trade with a 10x leverage, a 1% negative movement results in a 10% loss in your account.

What is the settlement method?

The settlement method is deliverable

What is the settlement procedure?

The settlement procedure involves the physical delivery of Canadian dollars. But there are normal daily settlements until Rollover Date. CME Group staff determines the daily settlement of CAD/USD futures (6C) at 14:00 Central Time (CT) based on trading activity on CME Globex.

What is the block minimum for Canadian dollar futures?

100 contracts

What is the difference between Canadian dollar futures and Forex for the Canadian currency?

First, the Canadian dollar futures trade the value of CAD against the USD, which is the inverse of the spot forex pair: USD/CAD. Also, the CAD futures are standardized, unlike spot market USD/CAD that trade over the counter. And finally, while the futures contracts have fixed expiration dates, the spot forex pair can be traded indefinitely.

Which forex pair is the same as Canadian dollar futures

In the spot forex market, the currency pair of the Canadian dollar to the USD is USD/CAD, which is the opposite of the CAD/USD offered in futures.

What are some important dates for this market?

The important dates include:

  • 1871 when the Canadian dollar was created
  • 1950-62 when the government first allowed the currency to float
  • 1970 when the government let the currency float again
  • 1998: the last time the government intervened in the currency

What is the highest CAD has ever been its all-time high?

According to data from TradingView, the highest the Canadian dollar has ever reached is $1.10395, which it achieved in November 2007.

What is the lowest CAD has ever been its all-time low?

The all-time low for the Canadian dollar against the US dollar is $0.61770, which was reached in January 2002.

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