Mexican Peso Futures Strategy (Backtest And Example)

Last Updated on December 12, 2022

The Peso is the official currency of Mexico. On the foreign exchange market, the currency is denoted as MXN or Mex$. Although not a major currency, the Mexican peso futures are highly popular among traders, ranking tenth globally, third in the Americas, and first among Latin American currencies. Want to know about the Mexican peso futures strategy?

Mexican peso futures strategy refers to the trading method or approach that you can use to profit from the Mexican peso futures market. Mexican peso futures are legally binding contracts to exchange a specified amount of Mexican futures on a future date, at a pre-agreed price. Its pricing is based on the MXN/USD exchange rate, and it is settled by the delivery of the underlying. You can use the Mexican peso futures strategy to speculate on the exchange rate or hedge exchange rate risks for your Mexico-based businesses.

In this post, we answer some questions about the Mexican Peso futures strategy in addition to backtest a strategy.

What are Mexican Peso futures?

The Mexican peso future is a futures contract whose underlying asset is the Mexican peso. So, it is a tradable obligation to receive or deliver a defined quantity of the currency at a future date and a previously agreed exchange rate.

The Mexican peso futures contracts are standardized and traded on futures markets like any other futures contracts. They are priced based on the predicted future exchange rate of the Peso versus the US dollar. On expiry, the contract is settled by the delivery of the specified amount of Mexican peso.

The Mexican peso futures contract is a leveraged product. Thus a trader only has to deposit a fraction of the contract’s entire value to trade it. Trading on the CME Globex platform, the contract can be used to speculate on the Peso value versus the US Dollar, hedge against exchange rate risks, or diversify their portfolios.

What is a Mexican Peso futures strategy?

This refers to the strategies and approaches for successfully trading this futures contract. It contains techniques for market timing, leverage and position size, risk management, and more trade management approach.

If you want to trade futures with any degree of success, you must have a solid trading strategy. The strategy must contain accurate entry and exit signals and risk management criteria.

Mexican Peso futures strategy backtest

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

What is the seasonality of Mexican Peso 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.

Mexican peso futures tend to perform better during spring and summer than during fall and winter. See the seasonal chart below:

Mexican Peso futures strategy
Source: Equity Clock

What moves the Mexican Peso What affects the Mexican Peso the most?

Several factors affect the movement of the Mexican Peso. Some of the key factors include economic reports, such as:

  • Monetary policy reports, including interest rates and policy statements
  • Inflation-focused reports, such as the consumer price index and the producers’ price index
  • Growth reports, such as the GDP, manufacturing PMI, services PMI, and retail sales
  • Reports about the balance of payments, such as current account and trade balance reports
  • Commodity prices, especially crude oil
  • The US crude oil inventory

In addition to economic reports, some important political events, such as elections, referendums, or trade wars with the US, can significantly affect the Mexican peso futures.

How are Mexican Peso futures traded?

The Mexican peso futures contract is available on the Chicago Mercantile Exchange (CME) Group. It may be traded from anywhere in the globe using the Globex electronic trading platforms — Sundays through Fridays from 5:00 p.m. to 4:00 p.m. CT, with a 60-minute break each day beginning at 4:00 p.m.CT. The market closes by 4:00 p.m. CT on Friday and reopens at 5:00 p.m. on Sunday.

A Mexican peso futures contract is equal to 500,000 Mexican pesos. The quoted price is in US dollars with five decimal places, and the minimum price variation is $0.00001 per Mexican peso increment or $5.00 per contract.

There are monthly contracts listed for 13 consecutive months and 2 additional quarterly contracts (Mar, Jun, Sep, and Dec). The contract expires on the third Wednesday of the contract month, and trading terminates at 9:16 a.m. CT, 2 business days (usually Monday) prior to the expiry day. If the indicated date for termination falls on a Chicago or New York City bank holiday, trading will end on the previous business day shared by Chicago and New York City institutions and the Exchange.

How do you start trading Mexican Peso futures?

The contract is traded through a futures broker, who can grant you access to the exchange and help clear your trades. So, to begin trading, you must first open an account with a futures broker and fund it.

You can also trade futures contracts CFDs with an online CFD broker like IG. A contract for difference (CFD) is an agreement to exchange the price difference between the opening and closing of a trade. It allows you to trade price fluctuations without dealing with the delivery issues associated with direct futures trading. If you can trust a CFD broker, you may want to try it.

What is the Mexican Peso trading at?

As of December 6th, 2022, the Mexican Peso futures were trading at $0.05053 per Peso. See the chart here on the CME platform chart. The chart was retrieved from TradingView.

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 chart or directly from TradingView.

What’s the Mexican Peso futures hour?

The Mexican Peso futures trades on the CME Globex electronic platform from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT (with a 60-minute break each day beginning at 4:00 p.m.CT).

For CME ClearPort, the schedule is Sunday 5:00 p.m. – Friday 5:45 p.m. CT with no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT

Where can I find trading charts?

The trading chart for the Mexican peso can be found 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 Mexican Peso futures?

There are two contract specifications for Mexican Peso futures on the CME’s Globex platform: the full contract and the micro contract. The full contract’s trading symbol is 6M. The product code on CME ClearPort and Clearing is MP.

What is the specification for the Mexican Peso futures contract?

One contract is equivalent to 500,000 Mexican pesos for the full Mexican peso futures contract. The minimum fluctuation on the CME platforms is as follows:

  • CME Globex: 0.00001 per MXN increment = $5.00
  • CME ClearPort: 0.000001 per MXN increment = $0.50

Monthly contracts are listed for 13 consecutive months, and two additional quarterly contracts (Mar, Jun, Sep, and Dec). The contract expires on the third Wednesday of the contract month, and settlement is by delivery method. Trading terminates at 9:16 a.m. CT, 2 business days (usually Monday) prior to the expiry day.

Why should you start trading Mexican Peso futures?

The Mexican peso futures offers so many trading benefits to traders. Those with businesses in Mexico may trade the Mexican Peso futures to hedge against exchange rate risks. Retail traders also trade the Mexican peso futures for speculative reasons due to its high liquidity in the market.

Some traders may simultaneously buy and sell the Mexican Peso futures contracts on different platforms to benefit from any price imbalance. This is known as arbitrage trading.

What is the contract size?

One contract unit of the Mexican peso futures is equivalent to 500,000 Mexican pesos. To get the USD value of the contract, you multiply it by the MXN/USD exchange rate. For example, with the MXN/USD exchange rate at 0.05053, the USD value of one full contract of the Mexican Peso future would be 500,000 x 0.05053 = $25,265.

What is the tick size?

The tick size is the USD worth of the minimum fluctuation. The tick size of the full contract of the Mexican Peso futures is $5 per tick per contract. ($.00001 per Mexican peso increments ($5.00/contract)).

What is the minimum price fluctuation for Mexican Peso futures?

The Globex platform’s minimum fluctuation is 0.00001 per MXN increment (equivalent to $5.00 per contract tick size). On CME ClearPort, the minimum fluctuation is 0.000001 per MXN increment, which is equivalent to $0.50 per full contract size.

Are there any ETFs?

No, there is no ETF tracking the Mexican peso futures market at the moment.

What factors affect Mexican Peso prices?

The following economic data have the most influence on the price of the Mexican Peso:

  • Reports on monetary policy, including rates of interest and policy statements
  • Reports focusing on inflation, including the consumer price index and the producers’ pricing index
  • Reports on the balance of payments, such as current account and trade balance reports;
  • Reports on growth, including the GDP, manufacturing PMI, services PMI, and retail sales;
  • Commodity prices, particularly crude oil;
  • The United States crude oil inventories;
  • Major political events, such as elections;

What is the all-time high for Mexican Peso futures?

According to the TradingView chart for Mexican Peso futures, the all-time high for the contract is 0.10673, which it reached in January 2002.

What are the biggest risks in trading Mexican Peso futures?

The biggest risks in trading Mexican Peso futures come from the adverse movement of prices. Given that it is a leveraged instrument, the losses are calculated based on the actual worth of the contract size traded. So, if you were trading with a 10x leverage, a 1% adverse movement would lead to a 10% loss in your account. A 10% adverse movement would wipe out 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 the specified amount of Mexican Peso. But there are normal daily settlements until Rollover Date. CME Group staff determines the regular daily settlement of MXN/USD futures (6M) based on trading activity on CME Globex.

The final settlement price of the expiring contract for MXN/USD futures (6M) is determined on the last day of trading at 9:16 a.m. Central Time (CT). The settlement price of the expiring contract is derived from the more actively traded, next deferred contract month. The spread differential between the expiring contract and the next deferred month is applied to the volume-weighted average price (VWAP) of CME Globex trades in the next deferred contract month during the 30-second closing range between 9:15:30 and 9:16:00 a.m. CT to generate a final settlement price. 

What is the block minimum for Mexican Peso futures?

100 contracts.

What is the difference between Mexican Peso futures and forex for the Mexican currency?

The key difference between the Mexican Peso futures and forex for the Peso currency is that the spot forex value for the Peso is determined in relation to the spot value of the USD, whereas the Peso futures is priced independently. Also, while the futures contracts have fixed expiration dates, the spot forex pair can be traded indefinitely.

Which forex pair is the same as Mexican Peso futures

USD/MXN. It is an inverse of the futures contract, which is MXN/USD.

What are some important dates for this market?

The important dates include:

  • 1925 when the bank of Mexico was launched
  • 1992 when a new monetary unit was adopted for the United Mexican States
  • 1993 when Mexico’s government created a new peso, or nuevo peso, to replace the original peso.
  • 2002 when Mexican peso futures made its all-time high of 0.10673

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

According to the TradingView chart for Mexican Peso futures, the highest level the Peso ever reached against the dollar was 0.10673, which happened in January 2002.

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

According to the TradingView chart for Euro FX futures, the lowest level the Euro ever dropped against the dollar was 0.03835, which happened in April 2020.

Conclusion

Trading the Mexican Peso Futures offers a lot of benefits, including hedging against exchange risks and speculation. But traders need to adopt the right Mexican peso futures strategy to get the most out of their trades.

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