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currency future vs spot currency?
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currency future vs spot currency?

  #1 (permalink)
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currency future vs spot currency?

Hi I'm just wondering why people trade currency futures if spot currency is more liquid and less trading cost?

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strike333 View Post
Hi I'm just wondering why people trade currency futures if spot currency is more liquid and less trading cost?

* Counter-party risk. When trading the 6E, for example, the CME essentially serves as the counterparty to your trade. Not like over-the-counter, where it is a dealer or another person. This all but removes the risk associated with a user-to-user transaction.

* In most bucket shops (as compared to most ECN's), very often the counterparty to your trade is the dealer. In other words, your broker is taking the other side of your trade. Your broker sees all your orders, and knows all the positions of its clients. If there are several clients who are shorting 1.3000 and you, the broker, are taking the other side, you know their position, and you can see that their stops are at 1.3010. So what can you do? Well, because you are not regulated, and because you can quote whatever you want, you buy a few more, and trigger the stops. Of course, when the stops trigger, you willingly take the other side. This is not conspiracy or paranoia, it's how trading in general operates, and with a decentralized environment like OTC forex, it's that much easier to do. I'm not saying it happens every 5 minutes. But it happens a lot.

* Quotes. When the 6E prints 1.3000, it can be seen by the entire universe. The volume is known, the time of the transaction is known. When the EURUSD spot shows up on your chart as going to 1.3000, on someone else's screen it may be 1.3001, or 1.3005. Your stop may get triggered, when someone else's does not, even though you have the same stop in place with the dealer. This is related to (1a) in that dealers can quote whatever they like.

* Edit: regarding commissions. As I type this, there is a 1 tick (1 pip) spread for the 6E contract. For EURUSD spot, the spread is 1.6 on Oanda, 0.6 on Alpari, 1.9 for forex.com, and 1.5 for FXCM. So, the cost will vary depending on the dealer, and may be more or less than the futures contract. If it's about 1.2 to 1.3, it will be roughly equal to the cost of trading a futures contract after the commission is factored in.


Last edited by josh; August 22nd, 2013 at 11:31 PM.
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strike333 View Post
Hi I'm just wondering why people trade currency futures if spot currency is more liquid and less trading cost?

Trading cost is not necessarily less for forex versus futures. In my experience, both are about the same.

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I'm with interactive brokers (ecn) so I don't think they can trade against me trading forex.

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If you scalp for < 10-20 ticks the biggest advantage to trading the futures contracts over spot currency is simply the 1 tick spread as Josh mentioned.

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strike333 View Post
I'm with interactive brokers (ecn) so I don't think they can trade against me trading forex.


But do you get cheaper commissions for FOREX than for futures?


Interactive Brokers Commissions

Futures 6E 1 lot 125,000 € -> commission + regulatory fees = $ 0.85 + $ 1.62 = $ 2.47

FOREX 1.25 lots 125,000 € -> commission = 0.2 * 0.0001 * 125,000 € = 2.50 € = $ 3.33

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More trading opportunities in spot forex.

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ctmvas View Post
More trading opportunities in spot forex.

Why?

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Fat Tails View Post
Why?

I can only assume he means that there are more cross pairs to trade than are offered in most futures markets, not that there are more opportunities in EURUSD spot than 6E, for example.

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