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Manage Your Risk with These Three Futures Trading Safe Havens

, | March 8, 2024 | By

In the real world, the term safe haven refers to a physical place where a person can escape from danger. In finance, a safe haven is an asset that holds or increases its value amid uncertainty. Whether a ship’s captain seeks a harbor to ride out a storm or an investor shifts liquidities to safe havens, the goal is the same: to avoid harm.

When it comes to futures trading risk management, safe-haven contracts give market participants the ability to hedge against catastrophe. Given the appropriate strategic considerations, any number of contracts may function as hedging mechanisms. However, if you’re seeking a true financial safe haven, three contracts rise above the rest: gold, the Japanese yen FX, and Swiss franc FX.

Top Three Futures Safe Havens

Flexibility is one of the key benefits that active futures traders and investors enjoy. From agricultural commodities to foreign currencies, a wide variety of asset classes are readily accessible. Among these listings are several tried-and-true financial safe havens. Here are three of the most prominent.

1. Gold

If you’re interested in futures trading risk management, then the Chicago Mercantile Exchange’s (CME) lineup of gold futures is a great place to begin. In fact, these contracts are ideal for fine-tuning hedging strategies of any size:

Contract Symbol Tick Value Intraday/Maintenance Margins
Full-Sized Gold GC $10.00 $4,510/$8,200
E-mini Gold QO $12.50 $4,100/$4,510
E-micro Gold MGC $1.00 $451/$820

Gold is a valuable asset for managing risk. Historically, the yellow metal has performed exceptionally well during periods of war, market strife, or currency devaluation. Accordingly, embattled traders and investors typically go long gold during recessions, inflationary cycles, or during times of extreme uncertainty.

Amid the global financial crisis of 2008-2012, bullion posted all-time highs above $1,900.00 in August 2011. The summertime rally capped robust 32 percent gains for the first eight months of 2011.

Nearly a decade later, gold futures once again topped the $1,900.00 level amid the COVID-19 pandemic of 2020. No matter the nature of the crisis, history tells us that gold is a bona fide safe-haven asset.

2. Swiss Franc FX

Based on the USD/CHF (CHF/USD) major forex pair, the Swiss franc FX is a preeminent risk management contract. Like gold, the Swiss franc holds esteem as one of the world’s most traditional safe havens. Accordingly, the CME offers the public two franc-based contracts:

Contract Symbol Tick Value Intraday/Maintenance Margins
Swiss franc FX 6S $12.50 $4,400/$4,000
E-micro Swiss franc MSF $1.25 $440/$400

Due to Switzerland’s political and financial stability, the Swiss franc FX is viewed as being a premier futures trading risk management vehicle. It regularly exhibits a positive correlation to gold, thus gaining value during equities market downturns or USD inflationary cycles. Given Switzerland’s standing in the global banking industry and neutral political status, francs are considered to be among the world’s safest assets.

3. Japanese Yen FX

At first glance, the Japanese yen doesn’t appear to be a viable candidate for safe-haven status. Japan’s huge government debt loads, rock-bottom interest rates, and stock market volatility make the yen appear risky. Nonetheless, it’s considered to be a valuable diversification tool by investors around the world. On the CME, Japanese yen FX futures come in multiple forms:

Contract Symbol Tick Value Intraday/Maintenance Margins
Japanese Yen 6J $6.25 $1,980/$3,600
E-mini Japanese Yen J7 $6.25 $1,980/$1,800
E-micro Japanese Yen MJY $1.25 $396/$360

In contrast to gold’s tangible value or the Swiss franc’s stability, the Japanese yen FX is a financially based futures trading risk management device. A primary reason for this is Japan’s standing as the world’s top creditor nation, which generates consistently large positive trade balances.

Also, the Japanese yen is a popular conduit for the execution of carry trade strategies. If uncertainty strikes, many investors close carry trade positions out in high-interest rate currencies and move back to yen. The result is a spike in the yen’s demand and value.

Want to Learn More About Futures Trading Risk Management?

As any good trader will tell you, it’s not how much you make, it’s what you don’t lose. The team at StoneX subscribes to this point of view, accounting for risk aggressively and head-on.

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