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Why trade Futures?

  • #1
  • First Post: Edited 6:50pm Jan 3, 2015 12:25pm | Edited 6:50pm
Sorry if it is a naive question, but I do not understand what is the advantage of trading Futures instead of common spot!

For example, for trading gold, we can buy XAU/USD spot, and it never expires. Instead, we can buy Gold Futures (with expiry data 15 Jan). The specifications are similar, just the latter has an expiry date. When trading with the same specifications, no expiry should be better. What is the advantage of trading Futures rather than common spots?

There are Futures for forex pairs too, how they have advantage over common FX spots?
  • #2
  • Jan 3, 2015 2:03pm Jan 3, 2015 2:03pm
Quoting etrade
Sorry if it is a native question, but I do not understand what is the advantage of trading Futures instead of common spot! For example, for trading gold, we can buy XAU/USD spot, and it never expires. Instead, we can buy Gold Futures (with expiry data 15 Jan). The specifications are similar, just the latter has an expiry date. When trading with the same specifications, no expiry should be better. What is the advantage of trading Futures rather than common spots? There are Futures for forex pairs too, how they have advantage over common FX spots?...
1-In the United States, we can't trade CFDs so the only way to trade gold, oil, grains, etc... is with futures or ETFs.
2-Slightly lower trading costs to trade futures vs. forex.
3-You're never trading against your broker with futures. Only trading with other market participants.
4-Futures market is regulated so large firms want the protection of the NFA & CFTC.
5-Forex accounts are not segregated so in the case of a bankruptcy of a firm, there's less protection of funds in a forex account.
6-One centralized market with futures so you can see ALL bids/asks from all participants. Order flow traders like this.
  • #3
  • Jan 4, 2015 9:53am Jan 4, 2015 9:53am
Quoting etrade
Sorry if it is a naive question, but I do not understand what is the advantage of trading Futures instead of common spot! For example, for trading gold, we can buy XAU/USD spot, and it never expires. Instead, we can buy Gold Futures (with expiry data 15 Jan). The specifications are similar, just the latter has an expiry date. When trading with the same specifications, no expiry should be better. What is the advantage of trading Futures rather than common spots? There are Futures for forex pairs too, how they have advantage over common FX spots?
Forex, and CFDs are joke. That's why ;-)

I would add 1 thing though:
At Futures you dont have that many news. When I was trading FX on the higher timeframes (15m-1h) I got fustrated since I was forced to quit my trades, due to the news. Forex markets chop around and then a news comes which pushes the market up/down 50+ticks. When I'm trading with a 15-10pip stop I can't let such a move to take me out...
At Crude Oil we have the weekly inventory and the monthly NFP but usually that's it...

And again: I would stress the lack of volume. At the futures I know EXACTLY where and which position the traders are. The "volume" indicators of the MT4 platforms are nothing but joke...
It's all psychology...
  • #4
  • Jan 4, 2015 3:27pm Jan 4, 2015 3:27pm
Is it possible to open demo accounts for futures ?
  • #5
  • Jan 5, 2015 2:00am Jan 5, 2015 2:00am
Quoting metta87
Is it possible to open demo accounts for futures ?
Can you describe your question with a bit more details, so we can give proper answer of it.
  • #6
  • Jan 5, 2015 2:53pm Jan 5, 2015 2:53pm
Quoting Arjun Bajaj
{quote} Can you describe your question with a bit more details, so we can give proper answer of it.
Hello Arjun, I was just wondering if it is possible to practice trading futures on demo accounts just like in forex or you have to open a live account straight up.
  • #7
  • Jan 5, 2015 4:03pm Jan 5, 2015 4:03pm
Quoting metta87
{quote} Hello Arjun, I was just wondering if it is possible to practice trading futures on demo accounts just like in forex or you have to open a live account straight up.
Of course you can. Brokers offering Futures, have them along with FX instruments in the same platform.
  • #8
  • Edited 4:35pm Jan 5, 2015 4:32pm | Edited 4:35pm
Spot Fx is a dwindling retail instrument of opportunity in the U.S. Regulators don't like it so the incremental steps to all but abolish it have been rolling out.
I started with spot some decade ago when it was a hot thing. It did not take long to dwindle down to just a handful of U.S. FCM's since then. Fxcm, Gain & Oanda have survived the course. It appears that less than 100K U.S. retail Fx traders exist at this time.

Futures trading is basically no different in action with some variations in physical price movement among the different instruments. (Also Different Exchange Hours Vs The 24Hr Spot Access).

At least with futures your actually trading for-real vs the virtual video game action of buying and selling a variation of a comstock price feed per broker tailored.
In generalized spot trading the other side is an illusion. You put up a deposit and buy and sell off of that deposit. Brokers claim all kinds of Jive about routing your order, etc.
Some odd out trading shops speak a different language such as STP Straight-Thru-Processing, and ECN electronic control network. These are cute descriptions but really mean nothing of real value to a retail spot trader.

As of this year 2015 I do not trade with any spot brokers. I only have a live account with a single large Stock/Futures Broker.

Don't waste your time riding the dwindling Retail Spot train Novelty (It was originally designed by "Banks For Banks In-termarket-Business" ).

Learn the contract functions of the futures market and trade a Real Market.:nerd:
"Look Left Think Right"
  • #9
  • Jan 5, 2015 6:48pm Jan 5, 2015 6:48pm
Quoting srt
{quote} . 5-Forex accounts are not segregated so in the case of a bankruptcy of a firm, there's less protection of funds in a forex account.
It depends on the broker. Australian ASIC regulated brokers (one of the strictest regulators) require client funds held in a segregated account to ensure security.

Unfortunately, as I understand it these types of brokers cannot accept US traders.
Follow me on twitter @FxLester
  • #10
  • Jan 5, 2015 7:12pm Jan 5, 2015 7:12pm
I feel this thread has started to derail into a discussion about ETF's vs CFD's instead of the OP's original question re: futures vs spot.

Quoting etrade
Sorry if it is a naive question, but I do not understand what is the advantage of trading Futures instead of common spot! For example, for trading gold, we can buy XAU/USD spot, and it never expires. Instead, we can buy Gold Futures (with expiry data 15 Jan). The specifications are similar, just the latter has an expiry date. When trading with the same specifications, no expiry should be better. What is the advantage of trading Futures rather than common spots? There are Futures for forex pairs too, how they have advantage over common FX spots?
The advantages depend on how you trade. Take CFD futures versus spot on the same broker. The spre/ads would generally be the same, the differences are:

Futures
No overnight interest/dividend charged/paid
Must close out at expiration date
Bid/ask is different to spot but the movement in points is generally the same

Cash/Spot
Overnight holding charges/interest
Can continue to hold
Bid/ask is different to futures but the movement in points is generally the same

In the above case, I'm draw from my experiences with trading CFD's on a regulated broker. I cannot speak about ETF's.

ETF's and CFD's are different beasts alltogether (which is where this thread has started to go!).
Follow me on twitter @FxLester
  • #11
  • Jan 6, 2015 2:44am Jan 6, 2015 2:44am
at the end of day if you are making money it doesn't matter really..
  • #12
  • Jan 7, 2015 5:31am Jan 7, 2015 5:31am
Quoting etrade
Sorry if it is a naive question, but I do not understand what is the advantage of trading Futures instead of common spot! For example, for trading gold, we can buy XAU/USD spot, and it never expires. Instead, we can buy Gold Futures (with expiry data 15 Jan). The specifications are similar, just the latter has an expiry date. When trading with the same specifications, no expiry should be better. What is the advantage of trading Futures rather than common spots? There are Futures for forex pairs too, how they have advantage over common FX spots?
From my experience, I've found that FxFutures have several advantages over FxSpot (I won't repeat what others have already stated):
1. Shorting high interest currencies like AUD and NZD will not cost you anything for holding overnight positions
2. When rolling over contracts, Contango and Normal Backwardation, could make you extra profits when aligned in your favor
3. Central exchange, volume information and COT reports can provide vital information for sentiment analysis

But there are also disadvantages:
1. FxFutures are fixed in size, while spot allows a greater degree of position sizing flexibility
2. When buying high interest currencies like AUD and NZD, the overnight interest adds to profits in spot trading
3. Futures contracts need to be more closely monitored when rolling over positions, this is not needed for spot trading.
  • #13
  • Jan 24, 2015 12:53pm Jan 24, 2015 12:53pm
Hi all,

Is it easy for a spot trader to switch to futures? Are the methods the same?

Thanks
  • #14
  • Mar 6, 2016 2:20am Mar 6, 2016 2:20am
for spot vs futures see this post: http://www.forexfactory.com/showthre...06#post8795606
  • #15
  • Mar 6, 2016 3:25am Mar 6, 2016 3:25am
- The trader has access to a huge number of instruments traded on various exchanges around the world. This gives the opportunity for a wider diversification of the portfolio.

- Futures are highly liquid, which makes it possible to apply different strategies.

- Reduced compared with the stock market commission.
  • #16
  • Aug 9, 2016 5:18am Aug 9, 2016 5:18am
CFD
Advantage - Small investments are made possible by choice of leverage. No margin needed.
Disadvantage - price manipulation unfavorable to traders, loss starting at a minimum of 4pip and maximum of 10pip when entering position.
FUTURES
Advantages - a fair market price formed by the traders themselves.
Disadvantage - high margin, high commission, no leverage.

i like futures more.
  • #17
  • Last Post: Jan 26, 2021 11:17am Jan 26, 2021 11:17am

  1. Tax Advantages (U.S. Traders): Profits on futures contracts are taxed at 60% the more favorable long term gains and 40% as ordinary income.
  2. Liquidity: Particular contracts like the e-Mini S&P 500 are some of the most liquid contracts you can trade. This allows for minimum slippage and increases your income ceiling.
  3. Market Hours: Virtually a 24 hour market. Sunday – Friday 5:00p.m. – 4:00p.m. CT with a trading halt from 3:15p.m. – 3:30p.m. CT; Daily Maintenance period Monday – Thursday 4:00p.m. – 5:00p.m.
  4. Transparency: Having centralized exchanges allows traders better access to market data. For example, Forex has no centralized exchange making the data less transparent.
  5. News Risk: Trading a product like Index Futures reduces your exposure to micro news events. A.K.A

This came from a free futures guide you can read here. https://www.jumpstarttrading.com/futures-trading/

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