If a European investor goes long or short the US ultrabond future, are they taking any forex risk or is it all interest rate risk?

External question — Personal Finance Stack Exchange Author: Bradley Thomas Original post: https://money.stackexchange.com/questions/131814 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. (The Ultrabond future is a bet on the price of 30-year US treasury bonds, which are dollar denominated.)

External answer — Personal Finance Stack Exchange Author: nanoman Original post: https://money.stackexchange.com/a/131820 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. For a futures position with typical margin, the risk is almost entirely interest rate risk. This is because the interest rate risk is leveraged but the forex risk is not (another way to look at it: the leverage is achieved by effectively borrowing in USD). If the bond futures price in USD is unchanged but USD declines 1% relative to EUR, the investor has lost 1% on whatever margin deposit was made. On the other hand, if the bond futures price in USD declines 1%, the investor has lost much more than 1% on the margin deposit (approximately 20% loss on minimum margin).