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Trading ccy futures with strategies backtested on spot fx
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Trading ccy futures with strategies backtested on spot fx

  #1 (permalink)
Trading Apprentice
belgium
 
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Trading ccy futures with strategies backtested on spot fx

Hi,

Is this a good idea? I understand there are differences in the quotes for spot vs futures, but are they significant enough to completely invalidate a strategy which was tested on spot fx historical data, if I intend to trade the strategy on currency futures? I am sure there probably is a catch somewhere (otherwise others would have done this too), just want to figure out what it is. Would really appreciate the advice on this one folks.

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  #2 (permalink)
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  #3 (permalink)
Elite Member
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I wouldn't say it's a good idea but it should work for longer time frame strategies. If you test on spot you won't be able to see how your strategy handles contract roll overs and you won't have an accurate depiction of execution quality. I'd say invest in some historical futures data and do out of sample testing on spot.

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  #4 (permalink)
Trading Apprentice
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Thank you Conorcoen. I am only interested in 15min and above timeframe, so I guess that shouldnt be too much of an issue. When you say 'execution quality', what do you mean by that?

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  #5 (permalink)
Market Wizard
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kc0793 View Post
Hi,

Is this a good idea? I understand there are differences in the quotes for spot vs futures, but are they significant enough to completely invalidate a strategy which was tested on spot fx historical data, if I intend to trade the strategy on currency futures? I am sure there probably is a catch somewhere (otherwise others would have done this too), just want to figure out what it is. Would really appreciate the advice on this one folks.



Depending how your strategy is set up, it could invalidate things. For example, futures are $12.5 per tick, but fx is $10 per pip (normal $100K size). Could this make a difference - possibly.

You best bet is to test before you leap into trading. You might find something that works in fx does not work in futures. Or, maybe it works better...

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #6 (permalink)
Elite Member
Vancouver, Canada
 
Futures Experience: None
Platform: T4
Favorite Futures: Futs
 
Posts: 37 since May 2013
Thanks: 1 given, 30 received


kc0793 View Post
Thank you Conorcoen. I am only interested in 15min and above timeframe, so I guess that shouldnt be too much of an issue. When you say 'execution quality', what do you mean by that?


With FX markets being fragmented you'll find that spreads vary slightly among venues, and depending on the venue your data was collected from it will differ from the spread on the futures contract. Not a huge factor when trading 15M and up time frames but still something to keep in mind.


kevinkdog View Post
Depending how your strategy is set up, it could invalidate things. For example, futures are $12.5 per tick, but fx is $10 per pip (normal $100K size). Could this make a difference - possibly.

You best bet is to test before you leap into trading. You might find something that works in fx does not work in futures. Or, maybe it works better...

Tick size varies among currency futures, they're designed to emulate a standard '1 lot' of spot, they're not all $12.50. I agree with you to test both, there are 'asymmetries' between the two such as limit up/down restrictions, multiple venues etc. that can influence results.

On a side note if you're trading 'micro' futures I'd definitely go with spot instead, cheaper liquidity in spot for that size.

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