Question: I was just looking at the spread between September 2011 and March 2012 Canadian Dollar. Is this worth trading?
Answer: To be honest, I am not a big fan of currency calendar spreads.
First of all, volume is low for the deferred contracts. That’s enough reason in itself. March12 has just 414 lots open interest. This means what you see in a spread chart if you just take one minus the other are very unrealistic prices. You see one would be trading while the other isn’t but software still calculates a price. I’ve attached a chart to illustrate.
Another thing to consider with FX calendar spreads, given cost of carry, is they are really only a representation of interest rate expectations. In that case, it is probably easier to trade short term interest rate futures like Eurodollars, Short Sterling etc.