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Spot Market vs Futures

  • #1
  • First Post: Nov 18, 2005 12:12pm Nov 18, 2005 12:12pm
Can anyone weigh in on the difference between the cash market and trading the futures. Is it better to trade the CME 6E contract or just trade the cash market EUR/USD using the spread?
  • #2
  • Edited 12:54pm Nov 18, 2005 12:30pm | Edited 12:54pm
I think there is nothing as good as FX markets.


thanks
kiss the trend
  • #3
  • Nov 18, 2005 12:47pm Nov 18, 2005 12:47pm
Quoting fx-trader777
I think there is nothing good as FX markets.thanks
Forex market is better than futures in all aspects except that it's not regulated.
  • #4
  • Nov 18, 2005 3:32pm Nov 18, 2005 3:32pm
Quoting kwallace
Can anyone weigh in on the difference between the cash market and trading the futures. Is it better to trade the CME 6E contract or just trade the cash market EUR/USD using the spread?
I don't know what's the CME 6E contract so I won't be of any help comparing it to any other thing...

A major difference between spot and futures is that futures have a certain delivery date in which you are obliged to close your position on either it's in green or red...Spot markets don't have this, as long as you are not in a margin call, literally you can hold forever...

Another difference, futures are traded on exchanges with starting and ending bells, so you will experience daily gaps, and they have daily up and down limits too, spot is free of all this...You can wake up one morning only to find the market opening up limit and you can't close your short position because trading stops if up or down limits are hit...This can go theoritically forever and you will have to keep adding money to your account to maintain the margin...In spot forex, you might experience gaps only during the start of the trading week and it is not often...

Futures can be good if you want to trade commodities because you can't trade them spot except for some very few...But in my opinion, if you wanna trade currencies, trade them spot, it's better and safer...If you wanna use futures on currencies, use them in conjunction with your spot trading strategy, like using them as a hedge to your winning position, or whatever suits you...


Thanks,

Nader
  • #5
  • Nov 18, 2005 3:47pm Nov 18, 2005 3:47pm
I think the main difference is that the price of the futures is based on the spot market. This means there are a bunch of filters between the spot price and the futures price - the so called greeks. Why worry about trading through the filters when you can trade the real thing - may as well just trade the spot.

Simon
  • #6
  • Nov 18, 2005 4:10pm Nov 18, 2005 4:10pm
Quoting narafa
Another difference, futures are traded on exchanges with starting and ending bells, so you will experience daily gaps
not anymore!!! now you can trade currency futures (ie EC, JY) on electronic markets that are open 24 hours just like forex. however, the volume outside NYC hours is not what it is in forex. so currency futures are a 24/5 market, but not quite to the capacity that forex is.
Relax and be happy.
  • #7
  • Nov 18, 2005 4:19pm Nov 18, 2005 4:19pm
Quoting kwallace
Can anyone weigh in on the difference between the cash market and trading the futures. Is it better to trade the CME 6E contract or just trade the cash market EUR/USD using the spread?
this is by no means an all encompassing list, but here are the differences as i see them (many were already mentioned by narafa)...

1. forex gives you higher leverage
you can get about better than 300:1 in forex, where futures max out at about 50:1.

2. forex allows you to trade in small increments
this is good if you are a small trader, or even a big trader looking for good resolution on your position sizing.

3. forex charges interest (rollover charges)
this is a whole other topic, but if you want to be long the japanese yen right now, it is better to trade in the futures market, because you will not be charged interest. inversly, if you want to be long the dollar, you would want to do that in the forex market, because you will collect interest. this only matters a lot when you hold positions long term.

4. forex has much higher volume
you will never move the market in forex (unless your a really rich bastard), but it can happen quite easily in the futrues market.

5. forex has no volume or open interest indicators
futures does

6. forex has no commission
but the spead cost is more than in futures. futures commission are about 5 bucks per round turn.

7. futures contracts expire
so if you want to hold them long term you will have to have a contract rollover strategy

8. futures are regulated
so you are a little more sure that you arent getting screwed by your broker. there are a lot of great forex brokers though, so this is not big a problem at the moment.
Relax and be happy.
  • #8
  • Nov 18, 2005 4:19pm Nov 18, 2005 4:19pm
Quoting merlin
not anymore!!! now you can trade currency futures (ie EC, JY) on electronic markets that are open 24 hours just like forex. however, the volume outside NYC hours is not what it is in forex. so currency futures are a 24/5 market, but not quite to the capacity that forex is.
Didn't know that, thanks Merlin for the info


Thanks,

Nader
  • #9
  • Nov 18, 2005 4:26pm Nov 18, 2005 4:26pm
btw, what the hell good is it that the futures market is regulated when these poor futures traders can not get their money out of refco?? if they never get their money back, regulation is just about worthless. but the story aint over yet.
Relax and be happy.
  • #10
  • Edited 5:37am Nov 19, 2005 5:32am | Edited 5:37am
Quoting merlin
btw, what the hell good is it that the futures market is regulated when these poor futures traders can not get their money out of refco?? if they never get their money back, regulation is just about worthless. but the story aint over yet.

Futures traders can get their money out of refco. Those are Forex traders who have their accounts frozen by Refco so they can't withdraw their money.
  • #11
  • Nov 25, 2005 4:21am Nov 25, 2005 4:21am
One important additional point: FX spot is not exchange based (unlike futures) so pricing is not transparent ie when you see a futures price, it should be coming straight of the exchange. The spot price is a price decided by whoever is on the other side of your trade. Some brokers/SBs take multiple price feeds from the top banks and average them out, but you can still get bad spikes on rare occassion. Good brokers would check this against Bloomberg or Reuters quotes and ammend your trade accordingly.


With respect to interest, futures don't pay or receive interest because this is reflected in the price different (Spot - Futures price).
"Always bet on black"
  • #12
  • Dec 27, 2005 12:06pm Dec 27, 2005 12:06pm
Quoting merlin
3. forex charges interest (rollover charges)
this is a whole other topic, but if you want to be long the japanese yen right now, it is better to trade in the futures market, because you will not be charged interest. inversly, if you want to be long the dollar, you would want to do that in the forex market, because you will collect interest. this only matters a lot when you hold positions long term.
This is 100% incorrect - at least the premise that there is no interest/rollover/carry in the futures market.

There is a spread between the current spot forex rate and the price of a given futures contract. That spread is based on the interest rate differential. As the contract approaches expiration, it's price will converge on the spot rate so that the holder of a futures position will make/lose interest just as the spot trader would.

As suggested, though, this is not something a short-term trader is going to have to worry about.
Efficient Markets? Hah!
  • #13
  • Dec 27, 2005 4:54pm Dec 27, 2005 4:54pm
To me hands down the futures markets rule.

The FACT that they are regulated and governed is reason enough for any SERIOUS trader to not mess around with forex brokers.

I could list a bevy of theoretical reasons why I feel this way BUT my main reason is just because I have traded BOTH and like I said the Futures markets are for the serious trader.
  • #14
  • Jan 1, 2006 1:22pm Jan 1, 2006 1:22pm
Quoting Samfox
To me hands down the futures markets rule.

The FACT that they are regulated and governed is reason enough for any SERIOUS trader to not mess around with forex brokers.

I could list a bevy of theoretical reasons why I feel this way BUT my main reason is just because I have traded BOTH and like I said the Futures markets are for the serious trader.
So you don't trade the forex at all?
I traded futures (small time) a long time ago without success. I'm tempted to get back in via option trading. Do you mainly trade contracts or options and how's your track record?
Also do you know if one can trade futures with an IRA account?

Happy New Year everyone!
  • #15
  • Jan 1, 2006 8:02pm Jan 1, 2006 8:02pm
Quoting Samfox
To me hands down the futures markets rule.

The FACT that they are regulated and governed is reason enough for any SERIOUS trader to not mess around with forex brokers.

I could list a bevy of theoretical reasons why I feel this way BUT my main reason is just because I have traded BOTH and like I said the Futures markets are for the serious trader.
come on sam, are you telling me you have traded both markets and you see no need to trade forex? AT LEAST you would want to trade forex when your position is in an interest gaining configuration, right?
Relax and be happy.
  • #16
  • Jan 2, 2006 6:25am Jan 2, 2006 6:25am
Quoting merlin
come on sam, are you telling me you have traded both markets and you see no need to trade forex? AT LEAST you would want to trade forex when your position is in an interest gaining configuration, right?
Merlin

I'm very Old School on this because I have seen my stops get hit way to many times with forex brokers and similiar positions hold with no problem on futures.

Just the other night I had a position on the Yen (Futures) that traded two ticks from my stop at least 4 times during the overnight session and it never got hit all night long.

I ASSURE you that if I had that position with ANY Forex broker it would have been stopped (for various reasons).

So the answer is, NO I will not trade with a Forex broker until they answer to some kind of regulatory body that I can trust.

The other danger that I ALWAYS see is what happens to price action during high volatility (after news reports etc..) the forex brokers are all as corrupt as can be during these times and price whips way out of sync with the futures markets a lot more imo.

I have recieved a few pm's asking me about more info on futures and the best place to go is the Chicago Mercantile Exchange web site.

You can find everything you need about every currency contract there.
  • #17
  • Jan 2, 2006 10:22am Jan 2, 2006 10:22am
Quoting Samfox
So the answer is, NO I will not trade with a Forex broker until they answer to some kind of regulatory body that I can trust.
well i can understand this point. however, due to the scattered nature of the forex markets, there will never be a regulator body, at least not in our lifetimes. its hard to control markets that span many borders.

to your point about stopplosses being hit, i have to disagree there. i feel my stops get hit more in the futures market. forex has wysiwyg pricing (which futures does not), and if a broker "extends" the price to hit your stoploss, it creates an arb opportunity for the rest of the world to take advantage of. also, my fills are always perfect in forex, where in the futures market sometimes i wont get filled even though the price traded through my entry point.

there are many advantages to the forex market over the futures market. i trade them both, and i choose which to trade depending on which market will give me an advantage. for instance, if i want to be short the EURUSD, i would hold that position in the forex market because i will gain interest, whereas in the futures market i wouldnt. if i want to be long the EURUSD, however, i would do that in the futures market so i dont get charged interest.

also, short term trading is much better in forex, because of the wysiwyg pricing. and if i need high resolution on my position size, i would trade forex because you can trade in much smaller increments than the futures market.
Relax and be happy.
  • #18
  • Apr 30, 2006 6:57am Apr 30, 2006 6:57am
Okay, Okay!

We understand all the hype about spot market makers.

However... What do you have to say about ECN Forex Brokers

ECN brokers include :

 

  2. CoesFx
  3. Hotspot FX
  4. Interactive Brokers
  5. MB Trading

What is an ECN FX BROKER? :
"An ECN is like an interbank broker. They don't trade against you so there is no need to manipulate the price. They consolidate bank quotes and show you the best bid and offers available. Spreads are tighter, but you have to pay commissions. When you make a trade they pass it through to interbank, so the counterparty is a real trader. Leverage is generally lower and minimum balances are higher. Interbank trades in $100,000 increments, so you need to be large enough to fit $7-10 per pip trades into you rmoney management.

A retail forex company acts as the market maker for all your trades. They shade prices, widen spreads arbitrarily, and trade against you. Their basically modern day bucket shops. The advantages retail brokers provide are that you can open an account with very little money, they give you crazy leverage, and usually you can demo trade on their platforms until you learn what you're doing. Most of them also have micro and mini lots so you can trade very small sizes."-DarkStar

  • #19
  • Apr 30, 2006 11:01am Apr 30, 2006 11:01am
I find this thread very informative, I did read up on ECN's some one had a word document that I down loaded. Here it is again very interesting.

Of the ECN brokers above which have you tried and what do you like abou them, I'm in US so does that make any difference in choice?

The spot market does seem to have alot of advantages over futures, low entry costs, 24 hours a day, no limit ups, limit downs, I also think you can lose more than you have in your account and it does not shut down automaticly.

How about off shore brokers is that a good idea bad idea or just to riskly? I see we are talking about regulators NFA and some imagined safety like Refcofx and I was able to pull out on the day before they froze up. They kept finding minor problems with my fax, I kept re-sending it till it went through. I was not much $ but as soon as I heard trouble I ran for the doors at full speed. Another person I know was on the phone screaming at them for her money the day after the freeze she got it out.

So off shore are they better worse than anything we have here and can a U.S. citizen even trade with them? I've heard some are not allowed for u.s.




Quoting avlasov
Okay, Okay!

We understand all the hype about spot market makers.

However... What do you have to say about ECN Forex Brokers

ECN brokers include :

 

  2. CoesFx
  3. Hotspot FX
  4. Interactive Brokers
  5. MB Trading

What is an ECN FX BROKER? :
"An ECN is like an interbank broker. They don't trade against you so there is no need to manipulate the price. They consolidate bank quotes and show you the best bid and offers available. Spreads are tighter, but you have to pay commissions. When you make a trade they pass it through to interbank, so the counterparty is a real trader. Leverage is generally lower and minimum balances are higher. Interbank trades in $100,000 increments, so you need to be large enough to fit $7-10 per pip trades into you rmoney management.

A retail forex company acts as the market maker for all your trades. They shade prices, widen spreads arbitrarily, and trade against you. Their basically modern day bucket shops. The advantages retail brokers provide are that you can open an account with very little money, they give you crazy leverage, and usually you can demo trade on their platforms until you learn what you're doing. Most of them also have micro and mini lots so you can trade very small sizes."-DarkStar

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  • #20
  • Nov 12, 2006 3:22pm Nov 12, 2006 3:22pm
Quoting merlin
this is by no means an all encompassing list, but here are the differences as i see them (many were already mentioned by narafa)...

6. forex has no commission
but the spead cost is more than in futures. futures commission are about 5 bucks per round turn.

What about the spread that these Spot Market Makers throw at you?
3-5 pips?

That is $300 - $500 commission per 1mil lot
Do you guys like to pay half a thousand dollars in commissions per trade?

So, is there really no commission? You will never see such commissions on Futures. True, there might be spread in the futures but nothing like Spot. Plus lets not forget Spot is not regulated like the CME is.

my 2 pips

-alex
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