Non-Deliverable Forward, Futures, Options: Hedging the Real

Every instrument in this article—a forward, a non-deliverable forward, a future, a swap or an option—prices the same thing: the interest-rate gap between the real and the dollar, which on 2 October 2026 made a three-month hedge cost 6.66% a year. On 5 October, after the first round of Brazil’s presidential election, the real strengthened about 4.6% in a single day (PTAX 5.2238 → 4.9859); the numbers below use the 2 October curves, and the mechanics do not depend on the date. The previous article took that price apart. What separates the instruments is everything else. Who can sign them, in which currency they settle and against which rate, whether they need a bank credit line or a margin account, and when cash changes hands.

For a vault or an offshore vehicle that holds Brazilian credit, those questions decide the hedge. The real cannot be delivered freely outside Brazil, and the instrument a structure can use depends on where it sits and what it can sign, not on which instrument is cheapest.

Five instruments, one price

The offshore real is a non-deliverable currency

Outside Brazil the real cannot be delivered freely, so the offshore market runs on the non-deliverable forward. Two parties agree a forward rate; on the valuation date they compare it with PTAX, the central bank’s official fixing, and the losing side pays the difference in dollars. Nobody ever delivers a real.

A $1,000,000 NDF at 5.3103 that fixes at 5.50 pays the dollar buyer $34,491; if it fixes at 4.95, the dollar buyer pays $72,788. The standard market template fixes against “BRL PTAX (BRL09)”, which the central bank publishes around 13:15 São Paulo time, and settles in dollars on an agreed date, usually two business days after the valuation date (EMTA/ISDA BRL NDF template).

This is not a niche product. In April 2025 outright forwards on USD/BRL traded about $58 billion a day, and $46.7 billion of that—roughly 80%—was NDFs. The real is the fourth-largest NDF currency in the world after the Indian rupee, the Korean won and the Taiwan dollar (BIS Triennial Survey 2025). A hedge of the real into the rupee or the yuan takes two such legs through the dollar, as the cross-currency article shows.

Two consequences matter for a structure. First, fixing risk. The NDF settles against PTAX, the average of four midday dealer polls, while the structure converts its actual reais at whatever rate it gets on the day; the two can differ, as the first article showed for spot timing. Second, the NDF pays in dollars offshore, but the hedged asset pays in reais onshore. The reais still have to be converted and moved, and the legal route for that conversion carries its own tax and cost.

Onshore: futures on B3 and CME

Inside Brazil the main hedging instrument is the B3 dollar future. Its terms (B3 contract page):

It is deep. On 2 October 2026 the front contract, November 2026, traded 270,075 contracts—about $13.5 billion—with 746,030 contracts open. Exchange-traded real contracts averaged about $47 billion a day in April 2025, roughly 23% of all exchange-traded FX in the world, mostly on B3. Offshore, CME lists a Brazilian real future of BRL 100,000, quoted in dollars per real and cash-settled against PTAX, with sixty monthly contracts listed (CME contract specifications).

Futures remove the bank’s credit line from the picture, but replace it with something a structure feels more directly: cash that moves every day.

Swaps for loans with coupons

A three-month deposit needs one forward. A two-year loan paying quarterly needs eight, or a single cross-currency swap that exchanges the loan’s principal and interest payments in one currency for those in the other over its whole life. An FX swap is the short-term cousin: one exchange now, the reverse exchange later. Both price the same rate gap at every payment date; what they add is packaging and a longer exposure to the bank, which means a larger credit line and usually a wider spread.

Options: pay upfront to keep the upside

A forward costs nothing on day zero, but it gives up any gain if the real strengthens. An option keeps that gain, for a premium paid upfront. A good rule of thumb for an option with a strike at the forward rate:

The approximation comes from Brenner and Subrahmanyam (1988). On B3’s volatility surface for 5 October 2026, at-the-money volatility for three months was about 15.3%, so the premium was about 0.4 × 0.153 × 0.5 ≈ 3.1% of the amount, or roughly $30,600 per $1,000,000, paid on day zero. That is in addition to the forward premium, which an option with a strike at the forward does not avoid. The option’s other property is easy to miss: its buyer never pays margin. For a structure that cannot fund margin calls, that can be worth more than the upside.

Cash on the way

A hedge is exact at maturity and expensive in between. Take the investor from the first article with $1,000,000 in a Brazilian deposit, hedged by buying dollars forward at 5.3103:

If the real strengthens 5% in the first thirty days, the forward position is worth about $57,000 less, and the holder must pay that now: daily on B3, or as variation margin under the collateral annex of an over-the-counter forward. International margin rules exempt physically settled FX forwards and swaps from initial margin, but not from variation margin, and NDFs are not exempt at all because they settle in cash (BCBS-IOSCO, 2020). The deposit has gained roughly as much in dollar terms, but it pays only on day 90. Between those dates the structure must find the cash.

How large can it get? Measured on daily rates since 2006, the largest 90-day rally of the real was 25.5%, from 3 March to 1 June 2009 (2.442 → 1.945 reais per dollar). A fully hedged $1,000,000 would have needed about $270,000 of margin—roughly a quarter of the hedged amount—before the deposit paid a cent. The quarterly windows of the hedge-or-carry backtest understate this: their worst quarter, February to May 2009, shows 18.3%, because windows that start at month-ends rarely catch the exact peak.

Calculator: margin on the way

Set the amount, how far the real moves and on which day. The line shows the margin due across all moves for that day; the amber markers are this article’s example and the largest 90-day rally since 2006.

Two things stand out. The size of the move matters far more than its timing: a 5% rally costs about $52,000 of margin on day 1 and about $67,000 on day 89, because the forward drifts toward spot as interest accrues. And even with no move at all, that drift means the dollar buyer pays a little margin every day and gets it back from the deposit at maturity. The reserve for the worst 90 days since 2006 stays near a quarter of the hedged amount whatever the day.

Where hedges break

The hedge is shorter than the risk

A nine-month loan hedged with three-month forwards has to be rolled twice, each time at a price unknown on day zero and each time paying the spread again. The roll is where a structure that looked fully hedged acquires a rate bet.

The borrower pays late, or not at all

A hedge runs on the scheduled dates; the borrower may not. If a farm loan pays sixty days late, the hedge still settles on schedule, and the structure has to settle it without the cash it was meant to convert. If the loan defaults, the hedge becomes an open position of its own. Hedge the cash flows you actually expect—principal plus interest, adjusted for the likely delays—not the face value of the loan.

The fixing is not your rate

An NDF settles against PTAX; the structure converts at its own rate on its own day. On a large position the gap is a real number, and it should be measured, not assumed away.

The hedge has no legal owner

An over-the-counter hedge needs an ISDA Master Agreement, usually a collateral annex, and a counterparty willing to extend credit. A smart contract can sign none of these. The hedge sits with an off-chain entity, and the structure’s documents have to say which one.

What an RWA structure can actually use

To our knowledge, as of October 2026 there is no on-chain market deep enough to hedge the real at size. In practice the hedge lives off-chain with a regulated counterparty, and the vault holds a claim on its result. That arrangement works, but it adds two risks the vault’s investors should be able to see: the counterparty’s credit and the margin reserve’s adequacy. Where the hedge sits is one of the funding choices of an RWA deal, alongside the four levers that set its cost of money.

S0, DI, CUP = 5.2265, 0.13533, 0.0577          # B3 curves, 2 October 2026
GU = 1 + CUP * 90 / 360
F0 = S0 * (1 + DI) ** (60 / 252) / GU          # 5.3103

def ndf_settlement(notional_usd, forward, ptax):
    """USD paid to the dollar buyer (negative: the dollar buyer pays)."""
    return notional_usd * (ptax - forward) / ptax

def margin_due(notional_usd, real_move, day):
    """Variation margin owed by the dollar buyer when the real moves by real_move (0.05 = 5% stronger)."""
    s_t = S0 / (1 + real_move)
    rem = 90 - day
    du_rem = round(60 * rem / 90)
    f_t = s_t * (1 + DI) ** (du_rem / 252) / (1 + CUP * rem / 360)
    return notional_usd * GU * (F0 - f_t) / s_t

print(round(ndf_settlement(1e6, 5.3103, 5.50)))    # 34,491
print(round(margin_due(1e6, 0.05, 30)))            # ~57,000
print(round(margin_due(1e6, 0.255, 45)))           # ~271,000: the Mar–Jun 2009 rally

The takeaway

Forwards, NDFs, futures, swaps and options all price the same interest-rate gap. For the Brazilian real the choice among them is made by access: offshore, the market runs on dollar-settled NDFs against PTAX; onshore, on B3 futures with daily margin; options trade upfront premium for freedom from margin. Whichever instrument a structure uses, the hedge is exact only at maturity. On the way it can demand about a quarter of the hedged amount in cash, as it would have in 2009. A hedged product is only as good as the instrument it can actually sign and the reserve it holds for the days in between.