Read our latest article on trading the Dollar Index futures contract on TraderPlanet!
Unfortunately, traders tend to migrate to what is comfortable; as a result, the dollar index has a tendency to get overlooked. Nonetheless, I believe that it offers traders some attractive characteristics that can't be found elsewhere.
Currency traders in the futures and FX markets are often overwhelmed by the complexity of dealing with multiple assets paired against one another. For instance, factors that cause the U.S. dollar to appear bullish against the euro might not be evident, or valid, against another currency such as the yen. Accordingly, trading currency pairs outright poses challenges.
Traders can diversify currency risk by establishing positions in multiple currencies but the most efficient means of managing exposure might be with the U.S. Dollar Index futures contract. The Dollar Index, sometimes referred to as the DX, enables traders to buy or sell a basket of currencies with a single transaction. Specifically, the U.S. Dollar Index represents the value of the dollar against a handful of global currencies such as the euro, the yen, and the British pound. Because the euro represents multiple countries and is the most commonly traded currency against the U.S. dollar, it makes up 57.6% of the dollar index. The second largest represented currency in the index is the Japanese yen at 13.6%.