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Trading Spot FX vs. FX Futures with IB?

  #6 (permalink)

Trading Experience: None
Platform: SC
Broker/Data: IB
Favorite Futures: CL
Posts: 99 since Apr 2016
Thanks: 130 given, 219 received



Spot I presume in this case is OTC rather that futures which is traded on the exchange. Just a few things to note:

1) the OTC market is very large, much larger than futures market due to institutional client requirements. eg. a large corporate in Japan would need to repatriate money back to their domiciled HQ for year end closing will need physical conversion of usdjpy or xxxjpy cross which the futures market is not able to provide. on top of that, institutional clients typically have hedging requirements for odd-dates which the futures market cant fulfill due to the fixed settlement dates unlike the forward market which is flexible.

1) in OTC market, only large banks active in FX have access to order book as clients will place it directly with banks - this is known as bilateral trading, so for banks trading with clients the biggest risk is credit risk unlike futures where the risk is with clearing house so there is no settlement risk.

2) only very liquid currencies with electronic platforms such as eurusd usdjpy usdchf or g7 predominantly have market depth, but again only visible to the big banks who need access to this liquidity via aggregators.

so, to answer your question short, there is no way for your broker who is not a bank to be able to furnish you depth of liquidity, order book (assuming they do not take the other side of your trade), or even volume data. even banks themselves do not release such information as it is proprietary and P&C as clients interest have to be protected especially in this environment of over regulation by central banks and regulators.

once you understand this, you will understand why it is difficult for your brokers to provide you with good fills especially during important events. unless you have a broker who specialise in FX and have strong system or some high frequency system in place to help execute - i have not done my homework yet, but i believe oanda does this quite well from feedback though i do not personally have an account with them.

i hope that clarifies.


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