Volume from FX futures, price action from Spot FX? | Forex Factory

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Volume from FX futures, price action from Spot FX?

  • #1
  • First Post: Jan 10, 2014 7:06am Jan 10, 2014 7:06am
Hello there,

Has anyone been trading the spot fx, but been using volume as indicator from futures market?

Or is trading both markets and can tell if there are some significant drawbacks for this method? As much as i monitored charts of both markets on a daily time frame (as i cant find free futures intraday providers), they seemed very similar and probably the volume at futures fx could be incorporated into spot fx.


Thanks.
  • #2
  • Jan 10, 2014 8:45am Jan 10, 2014 8:45am
They may look similar but still 2 totally different markets.

Some of the largest, market-moving orders will be on Spot, on the OTC market.

Obviously Spot FX volume will be much greater than CME Futures vol.
  • #3
  • Jan 10, 2014 10:28am Jan 10, 2014 10:28am
Quoting prekeivis
Hello there, Has anyone been trading the spot fx, but been using volume as indicator from futures market? Or is trading both markets and can tell if there are some significant drawbacks for this method? As much as i monitored charts of both markets on a daily time frame (as i cant find free futures intraday providers), they seemed very similar and probably the volume at futures fx could be incorporated into spot fx. Thanks.
There’s always been a debate about that. Emeraldeyes is very correct. They are two totally different animals. There has been a few studies floating around, and it has been found that Tick data is an acceptable proxy for volume. In doing research I have found that Commercial traders in the futures market often hedge those positions in the spot FX. Armed with that knowledge, I figured that one of those can possibly be an early indicator for the other. But which one? So, which one is leading the price discovery process? I eventually I ran into this paper. From their sample, they came to the conclusion that spot does lead futures in the price discovery process. So I came to a personal opinion that (for me) I could stop trying to use futures volume to analyze the spot forex, and if ticks are an acceptable proxy for volume, I’ll just work with what I got. (tick data) and keep my volume studies of Future limited to the COT report. This is just my opinion; I provided a copy of that paper. If nothing else it may give you enough info to form an opinion of your own………………………………
Attached File(s)
File Type: pdf Do Futures Lead Price Discovery in Electronic Foreign Exchange Markets.pdf   149 KB | 1,605 downloads
Markets are not efficient, rather they are effective - Jones
  • #4
  • Jan 10, 2014 11:18am Jan 10, 2014 11:18am
Thank you for replies. Some interesting thoughts in the pdf as well
  • #5
  • Jan 10, 2014 2:28pm Jan 10, 2014 2:28pm
You can try adding the CME daily high volume lines on the chart on your spot broker's chart and you'll see that it does help a bit. Although they are two different markets, the high volume areas are very liquid and as such can provide useful information (I usethis website to gather the data). It's not an exact science, though.

mzvega, thanks for the pdf, I'll have a look.
If you don't risk, you don't ever have to lose.
  • #6
  • Aug 14, 2014 8:12am Aug 14, 2014 8:12am
Hi Bug,
How does the high volume lines work ...does it calculate the from the previous day???
  • #7
  • Sep 30, 2014 5:43am Sep 30, 2014 5:43am
hi there

yes it does,there is 0.8 correlation between the two.

good luck.
  • #8
  • Apr 24, 2016 12:16pm Apr 24, 2016 12:16pm
Quoting mzvega
{quote} Theres always been a debate about that. Emeraldeyes is very correct. They are two totally different animals. There has been a few studies floating around, and it has been found that Tick data is an acceptable proxy for volume. In doing research I have found that Commercial traders in the futures market often hedge those positions in the spot FX. Armed with that knowledge, I figured that one of those can possibly be an early indicator for the other. But which one? So, which one is leading the price discovery process? I eventually I ran into...
Thanks a lot for the provided information! I find it to be very useful, as I used to wonder about that for quite some time. Could you share what source/s you use for the tick data? Also, do you think(I read that from petefaders' threads on babypips) that there are brokers that provide reliable/similar tick data to eSignal or any other reliable data providers?
  • #9
  • Edited 4:04pm Apr 26, 2016 1:46pm | Edited 4:04pm
Quoting deadliness
{quote} Thanks a lot for the provided information! I find it to be very useful, as I used to wonder about that for quite some time. Could you share what source/s you use for the tick data? Also, do you think(I read that from petefaders' threads on babypips) that there are brokers that provide reliable/similar tick data to eSignal or any other reliable data providers?
I have little or no need for any Tick Data. You have to ask yourself what is it you are trying to measure?
Many people think that the "volume of ticks" somehow relates to "volume of trades" or "volume of contracts". They often take the word "Volume" and use it interchangeably with the word "Demand" to mean the same thing.

The volume of trades is not a direct indication of actual "Demand".
The kind of "Demand" that moves the market, is created from traders willing to hold their positions overnight.

Lets say you have 100 traders all enter the market creating High volume of activity intraday.
98 of those traders are buyers, and only 2 are sellers, combined you have a high volume of activity.
Does that mean if you have higher volume of buyers intraday that prices will go higher? No.
If 98 of those traders (buyers) will exit the market before the close, there is no actual buying demand created that will cause the market to go higher.
If the 2 sellers are holding their positions beyond the close, the only actual demand created is "Selling demand". The demand is determined by the 2 sellers still holding positions, who still have skin in the game.

"Volume" is not a direct indication of actual "Demand".
High volume = Liquidity (not actual Demand)
The word "Volume" is not interchangeable with the word "Demand"
Intraday traders (day traders) provide liquidity, and have little to do with actual "Demand"

For me at the end of the day I have to ask myself, Am I using the correct Data for the question being asked?
Volume = activity
But the question I seek relates to "Demand".

How much of that activity contains "actual demand" created by traders willing to hold their positions overnight? Volume doesn't solve the "Demand" equation.
For me Volume data does not answer the Demand question being asked.

As a trader I am interested in measuring Demand. Who, how & where prices are being used is of interest to me. Traders with the intention of holding positions overnight, with the most skin in the game, operate in places most advantageous to them. Not the same high volume areas most valued by intraday traders with no skin in the game, who ultimately end the day flat, creating zero demand.

And as volume is not a direct indication of "actual demand", it has little or no value to me personally as a spot forex trader. IMO, supply & demand moves the market, not volume (activity)
Markets are not efficient, rather they are effective - Jones
  • #10
  • Sep 28, 2016 10:36am Sep 28, 2016 10:36am
I'm surprised after looking around for an whole day, that no one has done an indicator that pulls the futures data from somewhere like the MICEX and plots the the real time prices and volume on your MT4 Platform. Guess it's a job for our russian counterparts.
  • #11
  • Last Post: May 17, 2019 7:03am May 17, 2019 7:03am
Quoting hardpippin
I'm surprised after looking around for an whole day, that no one has done an indicator that pulls the futures data from somewhere like the MICEX and plots the the real time prices and volume on your MT4 Platform. Guess it's a job for our russian counterparts.
Actually, there is one (as far as I know)
It's ClusterDelta -it does exactly what you've described. They have a bunch of indicators to translate CME quotes to your MT4 platorm. So you can draw a preaaty accurate tick-data VP for example. Of courase it's not for free because level2 quotes it uses are not free also.
You can you Google to find their site (it is in Russian)
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