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Futures vs Spot Currency Trading

  • #1
  • First Post: Apr 22, 2006 10:59pm Apr 22, 2006 10:59pm
Here are some Pros and Cons of Trading Currency with Futures and Spot

Just for any newcomers, the FX SPOT market is what you trade with all the preferred brokers sponsored on this website. The FUTURES are traded with Brokers on the CBOT/CME...








The Futures Market

You can trade the dollar through the Chicago Mercantile Exchange’s (NYSE: CME) currency futures contracts. Currently, the CME offers contracts in about 16 currencies versus the dollar, and one generalized dollar index that tracks the dollar compared to a weighted basket of seven other currencies. To trade these contracts, you have to open an account with a futures broker. Here are some pros and cons to futures trading:




 

  1. Advantages: Well-regulated, sufficient liquidity, highly leveraged, low transaction costs.
  2. Disadvantages: High leverage brings greater risk, so you have to keep up with expiring contracts.
  3. Bottom Line: Leverage makes this an instrument for seasoned and disciplined traders and investors; however, for those who have the experience and skill, this is the way to get the best bang for your trading dollar.












The Foreign Exchange Market (Forex)

The Forex market is used by institutions and speculators to exchange currencies around the world. In sheer turnover value terms, it is the largest financial market in the world. In the Foreign Exchange Market, all trading instruments are denominated in pairs, such as the euro / U.S. dollar pair, the U.S. dollar / Japanese Yen pair, or the euro / Japanese Yen pair. Almost all retail Forex trading is done in the spot market, meaning that the instruments are bought and sold for cash and have immediate delivery. In order to trade or invest in the dollar in the Forex currency market, you need to open an account with a Forex broker.


 

  1. Advantages: Highly liquid market, can achieve high leverage, very small account equity allowed by some brokers.
  2. Disadvantages: Poorly regulated – this is not an exchange-traded market...and almost all retail Forex trading is done with your broker taking the other side of your trade. Despite the claims of “free commissions,” this is a relatively high transaction cost markets because the spread and slippage on trades can be very high.
  3. Bottom Line: The lack of regulation makes this a “buyer beware” type of market. The hidden transaction costs are much higher than meets the eye. These factors combine to make this a less favorable choice for most traders and investors. However, adventurous traders and those willing to take on leverage and fight through bad fills in fast markets can find a very active market for currency trading in Forex

I found this on th web, forgot the website though. Sorry guys, Im sure its googable.


Best Of All, and I wish all the best of trading.

  • #2
  • Apr 23, 2006 12:01pm Apr 23, 2006 12:01pm
I will send this link to some of my friends , who very new at this market !
  • #3
  • Apr 23, 2006 12:49pm Apr 23, 2006 12:49pm
Anyone here trades Currency in the Futures Market?
  • #4
  • Apr 23, 2006 1:57pm Apr 23, 2006 1:57pm
Quoting avlasov
Anyone here trades Currency in the Futures Market?
I did for a number of years but not recently.
  • #5
  • Apr 23, 2006 2:02pm Apr 23, 2006 2:02pm
Quoting Bemac
I did for a number of years but not recently.

Any comments about past trading?
  • #6
  • Apr 23, 2006 3:33pm Apr 23, 2006 3:33pm
Quoting avlasov
Any comments about past trading?
The main reason I switched was because CME & affiliated Brkrs did not {at that time} have the ability to Trade Electronically.

Another was the Margin Requirement {Below is old, from 2000 or so}

And the trading Sessions @ Forex were more attractive
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  • #7
  • Jan 22, 2007 10:17am Jan 22, 2007 10:17am
You have the ability to trade Futures and Options FX 24 hours a day with CME on the Globex.
E-trading is the real deal. Only pit hours have limitations.
  • #8
  • Aug 11, 2007 4:17pm Aug 11, 2007 4:17pm
How are swaps/interest payments handled when trading currency futures? Would I still receive a swap if I were long on the USDJPY contract?
  • #9
  • Aug 11, 2007 4:32pm Aug 11, 2007 4:32pm
Quoting avlasov
I found this on th web, forgot the website though. Sorry guys, Im sure its googable.
I expect that this is the web page you're referring to:
http://www.investmentu.com/tradersu/2005/20051123.html

David
  • #10
  • Aug 11, 2007 4:35pm Aug 11, 2007 4:35pm
Quoting mickeymickey
How are swaps/interest payments handled when trading currency futures? Would I still receive a swap if I were long on the USDJPY contract?
Yes, indirectly. The interest rate differential (IRD) is intrinsic in the contract price. Google "forward points" or read up on it at cme.com. With JPY futures for example, you "receive" the daily swap in the sense that the forward points are adjusted after the 17:00 EST close. When the futures begin trading again at 18:00 (they're open 23 hours a day), the price will reflect the newly established forward point spread. The benefits of this are twofold: you receive the true IRD, i.e. your broker cannot pad the swap rate like many do in the spot world. The second benefit is your accumulated interest is intrinsic in the contract price, thus "interest" is taxed at the favorable 60/40 split that gains on futures receive (as opposed to paying regular tax rates on interest income, which are usually much higher).

I trade futures and spot. For swing trades, I prefer futures. For intraday, I prefer spot.
  • #11
  • Aug 11, 2007 5:01pm Aug 11, 2007 5:01pm
How does it work? I am very green w/ futures.

Is it the same as trading forex? Is there an electronic platform you download from the CME to execute trades? Is there a demo account?

Thanks in advance....
  • #12
  • Aug 11, 2007 5:19pm Aug 11, 2007 5:19pm
Don't forget the commission + the spread with futures.....no commision in forex unless your trading with Interactive Brokers or EFX and maybe a couple others I'm unaware of at this tme.
Same Whore .... Different Dress
  • #13
  • Aug 11, 2007 7:20pm Aug 11, 2007 7:20pm
Quoting tdion
Is it the same as trading forex? Is there an electronic platform you download from the CME to execute trades? Is there a demo account?
For the most part it's the same; trading spot vs futures. There are a couple subtle but important differences (other than the ones previously mentioned). For example, in futures, the base currency is always the foreign currency. Thus, JPY, CAD, and CHF futures are quoted in direct terms (e.g. CAD futures are quoted at 94 cents instead of 1.0500 for USD/CAD). There's also contract rollover (3 month expiration). And if you trade crosses, stick with spot, the cross-rate futures are illiquid.

I would suggest creating a free account at the CME's website here which will allow you to view real-time futures data. You'll get a better understanding of how the inverse quotation works, how the forward points are factored in, etc.

I trade with IB and they offer a demo account, but delayed prices I believe. There are many futures brokers though and they usually all have demo accounts.
  • #14
  • Aug 11, 2007 7:27pm Aug 11, 2007 7:27pm
Quoting johnedoe
Don't forget the commission + the spread with futures.....
Spread is typically 1 pip in futures. And like a true ECN, Globex allows you to make a market, thus with limit orders, you can be filled on your side of the market w/o paying the spread. Obviously, if you're chasing a market you can't wait around to be filled on your side. But in stable markets, I almost never pay the spread (a pip is a pip!).

Quote
no commision in forex unless your trading with Interactive Brokers or EFX and maybe a couple others I'm unaware of at this tme.
There is no free lunch. You are always paying a commission no matter what platform/broker/dealing desk you use. Spreads for the majors on the top ECN platforms are oftentimes 0.5 pips or less, I will gladly pay $20/MM to get that (and have the same market making feature as described above).
  • #15
  • Aug 11, 2007 7:32pm Aug 11, 2007 7:32pm
Min volume/month requirements?
  • #16
  • Aug 11, 2007 8:06pm Aug 11, 2007 8:06pm
Quoting tdion
Min volume/month requirements?
None.
  • #17
  • Mar 21, 2009 5:37am Mar 21, 2009 5:37am
I have question on currency futures market compared FOREX .... do I may make profit in futures market with market fall like FOREX ? If possible how about those contract prepared of futures market ?
I hope some one here can help me to resolve confusion be in my mind
  • #18
  • Mar 21, 2009 5:58am Mar 21, 2009 5:58am
Quoting za_xc03
I have question on currency futures market compared FOREX .... do I may make profit in futures market with market fall like FOREX ? If possible how about those contract prepared of futures market ?
I hope some one here can help me to resolve confusion be in my mind
Now I'm confused. I'll be back after I take some aspirin.
The trend always ends.
  • #19
  • Mar 21, 2009 6:10am Mar 21, 2009 6:10am
Quoting ShamusFamous
Now I'm confused. I'll be back after I take some aspirin.
I new in this futures market and question coming to my mind and make I confused in hope were those like describing to me
  • #20
  • Mar 21, 2009 9:52am Mar 21, 2009 9:52am
Quoting avlasov
You have the ability to trade Futures and Options FX 24 hours a day with CME on the Globex.
E-trading is the real deal. Only pit hours have limitations.
Actually CME/Globex FX contracts only trade 23 hours a day. Its closed from 4 to 5 pm CT.
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