How to trade the Nikkei 225 Futures contracts

The Nikkei 225 index consists of the top 225 stocks on the Tokyo Stock Exchange.

There are various futures contracts on the Nikkei, including contracts priced in Japanese Yen and US Dollars. For many traders, the contracts priced in US Dollars will be much easier to work with as yen contracts can be worth many millions of yens. At the time of writing 1 US Dollar buys around 114 Japanese Yens. However, currency exchange rates are constantly fluctuating and have a tendency to be very volatile.

Firstly, let's look at the contract priced in US Dollars. This contract is traded on the CME futures exchange. It is priced at 5 times the price of the nikkei. For example if the nikkei is priced at 15,000 points, the nominal value of the contract would be $75,000. For one contract, each point movement would be worth $5. Currently the margin requirement for this contract is $5,000 and the maintenance margin requirement is $4,000.

Now, let's look at the contracts priced in Yen. The standard contracts are priced at 1,000 times the price of the Nikkei. For example if the nikkei is 15,000 points the nominal value of the contract will be a huge 15,000,000 Yens. I think I got the right number of zeros! :-)

There are also smaller Nikkei contracts priced in Yens. These contracts are half the size of the standard contracts.

In conclusion, the US Dollar contracts are probably hugely preferable to US traders and possibly other traders too. However, for traders who the Yen is not their native currency, it provides a further speculative opportunity.

If you are an American and you believe the Japanese Yen is highly likely to appreciate against the US Dollar during the time your nikkei futures contract is open, you could opt for one of the contracts priced in Yen. However, like index futures, currency pairs can also be very volatile.

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