Dollar Spread Future Contract


1. What is it?

A Dollar Spread Future Contract (DDI) is the interest tax rate obtained from the difference between the accumulated DI rates and the exchange rate (PTAX 800 seller’s) during the period of the operation. DDI trading started by 1998, as way to replace the combined use of dollar futures and DI futures by market agents.

Also known as DDI – its BMF&Bovespa code – the dollar spread future is mainly used by financial institutions, like banks. It represents the differential rate of interest and the internal exchange rate, referring to the same period. It’s possible to say that the DDI is a kind of interest rates in dollars, or if you prefer, wages in BRL for invested dollars. So, the higher the DDI gets, the more attractive is to be investing in Brazil. DDI prices can hike either when exchange rates grow, or when interest tax rates increase.

In other words, the DDI is a note whose wages are tied up to exchange floats plus an interest rate. This note has two components: the DI rates and the dollar. When buying a DDI, the investor will make profits everytime the CDI tax rates exceed the dollar changes in a period covered by his investment.

There are two types of DDI:

1. Dollar Spread Future “Dirty” – DDI – calculated by using the PTAX of the day before, which contaminates it with the exchange variation. Dollar changes for the day before the operation are used, but not the changes for the maturity day.

2. Dollar Spread Future “Clean”– disconsider the effect of the dollar changes one day before the operation, by using dollar spot rates.

2. Characteristics

The Dollar Spread Future Contract has some peculiar characteristics, as follows:


Dollar spread futures terminology follows a pattern:

1. DDI futures code is DDI, for instance “DDI1”.

2. The letter corresponds to the expiry month, as follows:

Month Letter
Janeiro F
Abril J
Julho N
Outubro V

 *International Standards

3. Expiry year.

Example: to deal with a DDI expiring in April 2014, we have the following code:

DDI  J  14

* For trading with ‘clean’ DDIs, replace the code DDI for FRC.

Unit price (PU)

DDI unit prices are multiplied by 100,000 points and expressed in american dollars. Quotations, on the other hand, are fixed in interest rates, in an annual basis (360 days), with up to 3 decimal places.

By the expiry date, the PU stands at 100,000 points. As each point equals to US$ 0.50, the PU by the expiry date reaches US$50,000.00. Thus, if you want to find the PU for the operation, it is just a matter of bringing those 100,000 to the current value, considering the current interest rates, by using the formula below:

PU = ____100.000____

             (i * n/360)+1


i = DDI annualized interest rates

n = number of days to the expiry date (calendar days)

Remind that the DDI interest rates and the PU are inversely proportional, meaning if the rates increase, there will be a drop in the PU. Hence, buying DDI rates lead to a selling position in PUs and vice-versa.

You can mount a synthetic futures position in Dollar Spread Future Contract, making the following operations:

- To protect a high dollar and falling interest rates (falling coupon), the investor would have to buy forward dollar and sell future DI (selling rate = get bought PU)

- To protect yourself from a falling dollar and high interest rate (high coupon), the investor sells forward U.S. dollar and purchase DI future (buying rate = getting sold PU)


Expiry dates can be place in any of the four subsequential months after the operation, and then by the beginning of each quarter. The matirity will be the first business day of the delivery month. For instance, a DDI traded in February can have the expiry dates placed in March, April, May or June, and then by July, October, or January next year and so on. This way, expiry dates align with DI futures, which gives an extra incentive to close longer deals on DDIs.

Day trade

It is possible to close a day trade (buying and selling futures with same expiry date in a same day) of DDI futures. The settlement of this transaction will be held on the next business day.

Daily settlement

The daily settlement is nothing more than a mechanism used by BMF&Bovespa to balance the investor accounts. As futures change in a daily basis, generating credits or debts, investors are daily updated on their positions, earning or losing as prices change – in other words, they either get their profits or pay for their losses daily. The mechanism is a protection against any noncompliance among investors.

For DI contracts, the daily change is subject to the following criteria:

1. Converted positions:

When buying and selling operations are hired originally over interest rates, they will be then converted to PU values.

2. Daily settlement:

Once operations are PU indexed, they will be updated based on daily prices, according to the stock exchange rules. The daily adjustment will occur until the expiry date.

Guaranty margin

It is a value deposited in cash or notes which will covering any noncompliance of an investor in daily adjustments. Usually to operate options, the investor is forced to deposit a guarantee to mitigate risks. The margin is defined by the stock exchange, according to the analysis of the futures market.

The assets accept as guarantee include cash, gold, government or private bonds, letters of pledge and quotes at funds.

Operational costs

There are basically two costs associated to this kind of investment:

Brokerage– it can change depending on the broker. However, most of them use the basic operational fees, stipulated by Bovespa. In this case, costs reach 4% for regular operations and 2% for the day trade, being the difference between the PU adjustment (previous day) and corrected theoretical value of the redemption.

Stock exchange fees – that includes emoluments and registering fees by BM&F. Also, ISS tax applies to the service.


By the expiration date, all positions that remain opened, after a last adjustment, wil be financially executed by the stock exchange, by registering the inverse operation of the position held, quoted by 100.000 points.

FRC Contract

To put an end in the distortion of the exchange rates one day before the day of the operation (DDI “dirty”), in 2001 an alternative version for this contract has been set up – the “clean note”. The “clean” version of a DDI disconsiders any change in the exchange rate for the day before the operation, by using th current daily spot prices.

The so-called FRC – Forward Rate Agreement – allows investors to trade DDIs with any expiration date between the original expiry date for the correspondent DDI and a subsequential expiry date. It uses a different code, but financially, rules remain the same as DDI’s.

Another difference is that FRC contracts are actually dismembered in two operations: the first for expiring on the DDI’s original date, also known as the “short end”; and the second for expiring on the FRC’s established date, also known as the “long end”. This type of operation on the penultimate trading day will be generated in the second month of DDI, remaining maturity until the penultimate day of trading, when the process is then repeated.

3. Profitability and risks

Profits and risks from investing in DDIs or FRCs are directly related to the free float dollar exchange rate, and also to benchmark interest rates in Brazil. The more the dollar goes up, the higher will be the value for the DDI. For instance, if the local banchmark rates are at 15% and the local currency (Real) drops 5%, DDIs pay out 9.5% (composite interests). The more the dollar drop, the less will be the DDI paying rate.

As seen before, profits and risks here depend on both indexes. Thus, we cannot precisely forecast gains, and the only we can do is to make predictions based on macroeconomic fundamentals about rates and dollar.

4. Taxation

Taxes over DDIs follow the same logic of any other variable income investment. Income tax is equal to 15% of the sum of all daily adjustments (if positive) and is charged just when you close a position. Also, income withholding taxes of 0.005% are due over the full amount of gains. If this value is equal to or less than R$ 1.00, this is exempted withholding tax.

For day trade operations, the income tax reaches 20% of profits, and the withholding tax other 1%.

All costs and fees paid for investing can be deducted from the income tax amount, including those from BMF&Bovespa. In case of losses, a compensation can be applied in any gains in the current month or subsequential months, as long as the operations are similar.

The investor himself is responsible for paying all taxes, except when withholding taxes apply – then taxes must be accounted monthly and paid in every subsequential month, under the code DARF 6015 for individuals and 3317 for legal entities.

5. Example

Here a practical example of a DDI. Let’s take the following information:

DDI interest rates 4,50%
Maturity PU 100.000
PU Value US$ 0,50
Invested amount US$ 100.000,00
Operation date 04/18/2013
Expiration date 06/01/2013
Work days to the expiration (workdays) 30
Days to the expiration (calendar days) 44
PTAX on trading date 2,6157
Exchange rate by 04/17 (D-1) 2,5971
Dollar in 05/31 2,6700
Exchange rate change
between 04/18 and 05/31
DI rate 8,50%

An investor wants to protect himself agains a possible high dollar exchange rates, and also a drop on Brazil’s benchmark interest rates. For that, he can purchase DDIs or FRCs (buying position in PUs). From the information above, we can calculate the PUs for the position that the investor is buying:

 PU =100.000 / 4,5% * (44/360) +1 = 99.453,01

To find the reference in dollars, you can just multiply the PUs by US$ 0,50, so that leads to:

99.453,01 x 0,50 = US$ 49.726,50

To find the number of purchased contracts, one can just divide the invested amount for the reference in dollars:

US$ 100.000,00 / 49.726,50 = 2 contracts

So that makes possible to find the PUs value by the expiration date:

PU = 99.453,01 x ((1 + 0,085)30/252) / (1 + 0,28070)  =    97.681,67

In order to find the profits from the whole operation, you can just subtract 100.000 points (PU value at maturity) by the accumulated PU at maturity and multiply the results by 0.5 to find the values in dollars:

(100.000 – 97.681,67) x 0,50 x 2 = US$ 2.331,08 (profit)

6. Advantages

  • Chance of making high profits;
  • Possibility of hedging and protecting other investments from interest rates ups and downs, provinding more flexibility to turn post fixed assets into pre fixed ones.

7. Disadvantages

  • Daily changes;
  • Guarantee margins;
  • Income taxes;
  • High risk.

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