FOREX vs. Futures

[jefftheripper]

Futures vs. Forex.

Hi everyone,

What are the pros and cons of Forex vs. Futures? I currently trade futures and I'm having some success. Started in mid Oct. went up 20% then down 15% from original acct balance by making some dumb mistakes. Since correcting those mistakes I've manages to claw my way back to about a 20% profit. Most of my trades have been with currencies (Canandian $ mainly)

From what I understand the Forex market is much more liquid, but I don't quite understand it yet. What are the other advantages/disadvantages of FOREX over trading straight futures contracts? I don't know much about FOREX, do you pay commissions per trade? are the charts live or delayed like with my Futures broker? Any recomendations are appreciated.

Thanks

 

[Rhody Trader]

To answer your last specific questions first...

In spot forex whether you trade a commission will depend on whether you are using a market making (sometimes called a "dealing desk") broker or and Straight Pass Through (SPT or ECN) broker. The former doesn't charge commissions because they make a market with their customers and earn the spread. The latter operates more like a futures broker in that you pay a commission and they just serve to facilitate your order being matched against someone else within a network of "liquidity providers" (banks, brokers, etc.)

As for charts, most spot brokers will provide you real-time prices and charts for free.

In terms of other general comparissons...

The spot forex market has a wider array of legitimately tradable pairs at all times of day. Some futures contracts can be very thinly traded, especially at certain times of day. The well-established regulation of the futures market is an often-cited reason to trade their rather than in the spot market, but the US forex brokers are now regulated by the CFTC via the NFA in the same fashion as futures are, so that's less of a consideration these days.

To my mind, the single biggest advantage of spot forex over futures, even with the introduction of micro futures contracts, is the flexibility.

 

[jefftheripper]

Thanks,

I like the abilty to have real time charts. With my futures broker my charts are 15-30 minutes behind what the market is doing. I have to wait for my signals and usually a retracement to get in. In fact I just got stopped out. From what I've read in the FOREX I should just concentrate on 6 currency combos with the US $. Do you have a broker you recommend? I take it you like the SPT broker best.

 

[Rhody Trader]

Actually, I generally encourage those new to forex, especially with small capital amounts, to look at Oanda.

 

[Trdr]

jefftheripper: ". . . or delayed like with my Futures broker" —
can't believe what i read, who besides you trades 'delayed' ?

both of the following US brokers are IBs and both use the same FCMs, both offer
NinjaTrader with the Zen-Fire data feed and also provide realtime data feed demos
NT is a much used charting order/entry program, chart price in seconds, ticks etc
there are also other brokers with the above
http://www.ninjatrader.com/webnew/index.htm http://www.ninjatrader-support2.com/vb/index.php
http://www.ampfutures.com/ rep: Justin 1 800 560 1640 rt comm: $4.80
http://www.mirusfutures.com/index.htm rt comm: $4.40
daytrade margin $4/500 depending on futures contract

Oanda fx: doesn't provide leverage above 50 but their usual rth spread for the euro is .9 pip
the spread does widen during non rth and will go to 10 pips during a very active market
such as a news release. their charting is poor tho they do provide 5, 10 and 30 second
charts. ime fills, both entry and closing are instant and without slippage, but i don't know
if the same would be true when trading multi Lots. they're the oldest US fx broker and tho
unpublished, likely to have the largest client base. minimum trading amount - $1. good
customer support via phone: http://fxtrade.oanda.com/
to view the spreads of the 48 pairs Oanda offers: Recent OANDA Spreads:
http://fxtrade.oanda.com/forex_trading/why_trade_with_oanda/spreads/recent_oanda_spreads
because the Oanda charting capabilities are poor i also use a MetaTrader 4 demo from
http://www.alpari-us.com/ there are many brokers providing MT4 demos

"the Forex market is much more liquid" — only in total
each individual fx broker is its own market, there's no central exchange, the consequences
are spreads, executions and slippage varies from broker to broker and if the futures market
is thin the fx broker's will be just as thin or more so
recent legislation has lowered leverage for fx while the margin to trade futures contracts is
500, but, o/n rises to $3500 which makes fx the better deal when trading o/n

the single large downside to trading the Globex is that if they or the data feed provider goes
down or your ISP, you can't get out of your trade, happens infrequently. this can happen with
fx brokers too but one can always exit a trade via the phone

 

[jefftheripper]

Thank you,

Ninja Trader sounds like what I'm looking for. Currently I trade Futures with Orion Futures. The price data is real time (if I click refresh) but the monthly futures chart is behind. For example, if I'm watching a 15 minute candle chart at 2:01 pm the last 15 minute candle I see is the one from 1:45.

I guess I need to do some more research on the FOREX and trade a demo account while I continue with FUTURES until I'm comfortable with it. Does FOREX trading have hours? Globex shuts down for a little everyday and some markets are different than others on when I can place trades. Also, I guess the FOREX is trading the spread of 2 currencies that are grouped together (say Swiss Franc and US $). Isn't that more complicated than just watching the charts for one currency and trading it long or short?

Thanks again for the input.

 

[Rhody Trader]

On the forex trading hours, there are none. The market gets going on Sunday evening with the Asian open and runs through Friday afternoon in NY. The London/NY overlap is the most actively traded timeframe, but there is trading in the majors 24/5.

As to the relationship/spread question, what you don't realize is that you're trading the exact same thing in futures. If you're trading the Canadian Dollar contract, that's the same as trading USD/CAD except that the latter is quote in CAD terms rather than USD - in other words 1/futures. All of forex is cross relationships, futures included. There is no such thing as just trading one currency because they only price in terms of their value relative to other currencies.

 

[Trdr]

i need to qualify what Rhody Trader has said about trading hours

fx broker's set their own trading, admin, support hours and holiday closures, in general
(Alpari) open on Sundays at 3pm pst, continuous trading until closing Friday 2pm pst
however
Oanda is the only fx broker i know of - possibly including any financial institution - that
allows trading the full 24/365, tho during the weekend spreads are at their widest and
there's little or no trading done after the Fri close until Sunday morning when some trades
go thru much earlier than the 3pm open: here's 'OANDA Holiday Hours' notice:
"CUSTOMER SERVICE IS NOT AVAILABLE:
Dec 24th (midnight EST) - Dec 27th (4pm EST) Dec 31st (noon EST) - Jan 3rd (4pm EST)
SPREADS: Dec 24 (noon EST) - Dec 27: 'weekend' spreads available
Dec 28: Spreads may be wider than normal depending on market liquidity and volatility
Dec 31 (noon EST) - Jan 4 (London open): 'weekend' spreads available"


i should point out that NT/ZF doesn't provide historical data at this time, data can be
imported if you have a source, another reason why i use MT4 with both FXTrade and
NT, the historical data/charts MT4 provides - 4H D W M

 

[jefftheripper]

Thanks Rody Trader and Trdr. You've clarified alot of my questions. Now it's time to do my research and pic my broker, paper trade to see if my futures techniques will work in the FOREX. Have a great new year and thanks for the help.

 

[jefftheripper]

For any other newbies reading this thread I found some useful info. at www.babypips.com/school/forex_versus_futures

Here's what I found in a nutshell:

1. FX more liquid than futures ($2 trillion traded a day in FX vs $30 billion in futures)
2. FX brokers make money through spread (bid/ask price) instead of commision (usually) while futures brokers charge a commission. there is also bid/ask price in futures but i don't know if the broker gets the difference.
3. Guaranteed limited risks in FX. I'm not sure if this is true but the page stated your risk is limited to your account size and your positions will be closed out if price moves against you (margin call exceeds your account). Futures can keep moving against you requiring you to keep meeting margin calls...if you didn't have a stop loss. Also, what if you stayed in a trade after the deadline and have to take delivery of a train load of pork bellies?

4. FX is 24hr seemless trading from 2:15 pm EST till 4pm EST while the Globex futures market has different breaks each day for different commodities.

As for now, I'm still a futures trader... but from what Rody Trader, Trdr and my research have shown, FOREX is looking like the better market if my trading techniques will work there.

 

[Trdr]

jefftheripper:
"1. FX more liquid than futures ($2 trillion traded a day in FX vs $30 billion in futures)"
i take exception to this because what's being referred to is the currency trading of
'everyone in the world'

when one trades fx, one's trading and the liquidity is limited to the broker one's dealing
with, period; not 'everyone in the world'

this can raise all sorts of concerns and one should study the Customer Agreement to
ensure one understands how the broker transacts trades. FXCM has comprehensive
open explanations of its services and the following relates to "Trading Execution Risks":
http://www.fxcm.com/execution-risks.jsp
some years ago now fxcm wouldn't accept orders 5 ? 10 ? minutes prior to the release
of an economic report; some brokers today will freeze or even stop transmitting price data
during releases, as well as during 'fast markets'

you may or not want to 'trade the news' but the following illustrates imo the difference
between futures and fx trading, tho obviously currency futures are a part of 'FX trading'
http://www.trade2win.com/boards/forex-discussion/70472-6e-vs-eurusd-nfp-release-news-trading.html
some additional info regarding that single minute trades - that data - bid/ask, orders and
exectutions, etc, transacted in microseconds, requires nearly 6,000 lines to be displayed
in Notepad or a spreadsheet

"2. FX brokers make money through spread . . . " as well as their clients' losses
the reason why fx brokers are referred to as 'bucket shops': "Bucket shop is a brokerage
firm that “books" (i.e., takes the opposite side of) retail customer orders without actually
having them executed on an exchange." http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

futures: 6E contract is $125,000 , trading margin $500 , fixed commission - say $4.50 rt
fx: 12.5 mini lots / 1.25 Lots , trading margin ? trading cost ? - 12.5 / 1.25 x variable spread
example: a fixed 3 pip spread would mean trading cost is $37.50 v $4.50 commission and
even with Oanda at .9 pip this would be $11.25 v $4.50 , and $3,576.75 trading margin at 50:1

'i will sell at . . . ' Ask 'i will buy at . . . ' Bid ; usually, but definitely not always, 1 pip/tick
difference in price paid by the buyer/seller, nothing to do with the futures broker or exchange

"3. Guaranteed limited risks in FX." check and verify in writing with broker what their's is
a big plus for fx trading is this prevention of 'overloss'
in theory, this should also exist when trading the Globex

Stop orders are merely an 'execute at market' order when that price has been hit or
passed through, they do NOT gurantee a fill at the Stop price

delivery: no one is going to take delivery, contracts should be rolled over, however i do
know of a case where this almost happened, gold when the contract still used limits
and the price broke down $100 in feb/83 during contract expiration, it locked-in trades
took the exchange a full month to clear-up all the paper work ! - but no one took delivery

 

[Daniel Webb]

Futures vs. Forex.

Hi everyone,

What are the pros and cons of Forex vs. Futures? I currently trade futures and I'm having some success. Started in mid Oct. went up 20% then down 15% from original acct balance by making some dumb mistakes. Since correcting those mistakes I've manages to claw my way back to about a 20% profit. Most of my trades have been with currencies (Canandian $ mainly)

From what I understand the Forex market is much more liquid, but I don't quite understand it yet. What are the other advantages/disadvantages of FOREX over trading straight futures contracts? I don't know much about FOREX, do you pay commissions per trade? are the charts live or delayed like with my Futures broker? Any recomendations are appreciated.

Thanks

Here are some of the advantages of Forex Trading:

In FOREX, you can trade any time of the day at your convenience. Unlike Future trading it usually opens at 9:30am and closes at 4pm EST in North America. In Future trading there is often a delay between placing your order and when it actually gets filled. This can mean the difference between making a bundle and making nothing at all. With FOREX market you can fill your orders instantly based on the real-time data you see on your trading platform. Unlike equity exchanges, FOREX traders can access the market maker directly without having to go through an intermediary first. The FOREX market cannot be influenced by any one brokerage or person as it is representative of a country's economic health and not opinion.

 

[dcraig1]

Here are some of the advantages of Forex Trading:

In FOREX, you can trade any time of the day at your convenience. Unlike Future trading it usually opens at 9:30am and closes at 4pm EST in North America. In Future trading there is often a delay between placing your order and when it actually gets filled. This can mean the difference between making a bundle and making nothing at all. With FOREX market you can fill your orders instantly based on the real-time data you see on your trading platform. Unlike equity exchanges, FOREX traders can access the market maker directly without having to go through an intermediary first. The FOREX market cannot be influenced by any one brokerage or person as it is representative of a country's economic health and not opinion.

You either don't know what you are talking about or have some special agenda. Fills on marketable orders on electronically traded futures contracts are very very fast - a few msecs. Many futures contracts eg ES,YM, currency and other futures trade almost 24 hours a day. Furthermore there are plenty of liquid futures markets trading in non US time zones in Asia and Europe, so there is no problem finding suitable markets at any time of day or night.

Futures are true auction markets so there is no "middleman". Which means your broker is not taking the other side of your trade.

 

[jefftheripper]

jefftheripper:
"1. FX more liquid than futures ($2 trillion traded a day in FX vs $30 billion in futures)"
i take exception to this because what's being referred to is the currency trading of
'everyone in the world'

when one trades fx, one's trading and the liquidity is limited to the broker one's dealing
with, period; not 'everyone in the world'

this can raise all sorts of concerns and one should study the Customer Agreement to
ensure one understands how the broker transacts trades. FXCM has comprehensive
open explanations of its services and the following relates to "Trading Execution Risks":
http://www.fxcm.com/execution-risks.jsp
some years ago now fxcm wouldn't accept orders 5 ? 10 ? minutes prior to the release
of an economic report; some brokers today will freeze or even stop transmitting price data
during releases, as well as during 'fast markets'...

Good to know Trdr, thanks for clearing that up, good info. Sounds like the broker has all the power and selecting the right one is of the most important decisions next to having a successful trading system. Personal question, do you trade both futures and forex? If so, which do you like best?

I don't trade the news (I'm not fast enough) but I have been whipsawed by it. I pretty much stick to technicals. It's looking like I should stick to futures for a while and do tons of research a trade with a demo account on the FX. I still don't get how I'm going to try and predict price direction on a currency when they don't all seem to have an inverse relationship. For ex. I've traded the Canadian $ and noticed that many times both it and the USD will be up. In forex I'd be trading them together. Guess it comes down to reading the charts like anything else.

Daniel, my trades in Futures have been instantaneous unless of course it's a mkt order and waiting for price. Also, I can trade almost round the clock. However, some futures you can't, like the ICC market (cocoa, coffee, sugar). Also, I also tried to pull the trigger on wheat once at 9:16 am Central time only to find the market shut down at 9:15am and reopened with the pit at 10am. They're not all the same. But you can trade through the night or day. Though not as seemless as FOREX from what I've read.

 

[Trdr]

there are 2 futures markets, the pit trading at various exchanges such as the CME, CBOT
and the Globex electronic market
pit trading hours: http://www.usafutures.com/commodityprices.htm
Globex trading hours: http://www.efutures.com/traders/contract_specs.php

pit traded orders are initiated via phone to the broker then forwarded for execution by the
broker's pit trader - open outcry; Globex orders are initiated via mouse click and in general
market orders are filled instantly

Globex
the average daily volume of the Eurodollar (financial) is well over 2 Million contracts per day
the average daily volume of the ES is well over 2 Million contracts per day up to 5 Million
the most heavily traded currency is the 6E Euro Fx with an average daily volume well over
200,000 and high volume days approaching 500,000

the Alpari NY MT4 demo daily volume of the eurusd on Dec 29/09 was 33,829
however
with MT4, the volume of each price bar whatever the timeframe is the Tick volume of that
price bar - ie, the total number of price changes in that period
since retail fx trades have no fixed contract size, there is no way to know how many 'contracts'
are being traded nor the total dollar value of those trades during the bar period, and this will
be the same for every retail fx broker's platform

the groups involved in fx trading - world wide - on any particular day that make up that multi
trillion $ market are the hundreds of banks, hundreds of companies/businesses, retail fx
brokers, hundreds of futures/stock etc brokers, hedge funds and currency ETFs to name some

out of all those thousands, the retail fx broker you trade with is only 1


those trading the 6E etc Globex/futures markets are comprised of some of all of the above


jefftheripper: "do you trade both futures and forex? If so, which do you like best?"
bang-for-buck futures

 

[Rhody Trader]

jefftheripper:
"1. FX more liquid than futures ($2 trillion traded a day in FX vs $30 billion in futures)"
i take exception to this because what's being referred to is the currency trading of
'everyone in the world'

when one trades fx, one's trading and the liquidity is limited to the broker one's dealing
with, period; not 'everyone in the world'

One needs to differentiate between market making brokers and ECN or SPT brokers. While it's true the former are your only source or liquidity if you're trading with them, in the latter case it's not. ECNs operate much more like globex.

"2. FX brokers make money through spread . . . " as well as their clients' losses
the reason why fx brokers are referred to as 'bucket shops'

Again, only if you're excluding the SPT brokers. They are straight commission shops.

futures: 6E contract is $125,000 , trading margin $500 , fixed commission - say $4.50 rt
fx: 12.5 mini lots / 1.25 Lots , trading margin ? trading cost ? - 12.5 / 1.25 x variable spread
example: a fixed 3 pip spread would mean trading cost is $37.50 v $4.50 commission and
even with Oanda at .9 pip this would be $11.25 v $4.50 , and $3,576.75 trading margin at 50:1

You seem to be assuming zero spread on the futures, which is simply not the case. It's worth noting that with ECNs zero spreads in the likes of EUR/USD are not all that uncommon, and at times you can even see negative spreads.

 

[Rhody Trader]

I still don't get how I'm going to try and predict price direction on a currency when they don't all seem to have an inverse relationship. For ex. I've traded the Canadian $ and noticed that many times both it and the USD will be up. In forex I'd be trading them together.

When you trade the C$ futures you ARE trading them together!

The C$ futures are the price of the CAD in terms of USD. In spot terms that would be CAD/USD. Invert the price (1/x) and you get USD/CAD, which is how it trades in the spot market.

The pound and euro are each direct futures to spot transfers (taking out the carry interest incorporated in the futures price) as they both trade in USD quote terms in the spot market (EUR/USD, GBP/USD). The Swissy and yen, though, are like the C$ in that you have to invert from futures to spot (CHF/USD to USD/CHF, JPY/USD to USD/JPY).

 

[Trdr]

re Rhody Trader's comments

STPs, yes, brokers that changed to STP must be crying all the way to the bank

there's been a lot of good change in retail fx initiated by US regulators but there's still a lot
of crap around: 'Unregulated Forex Becomes Criminal Offence'
posted by the CySEC (Cyprus Securities and Exchange Commission ) regulatory body
http://www.elitetrader.com/vb/showthread.php?threadid=184795

been a long time since i was looking at ECN info, the problem being that minimum margin
last i saw was $25K or more, min trading 10Lots, tho there may be ECNs that have lower
requirements; following may not be a complete list or currently up-to-date:
http://www.100forexbrokers.com/stp-ecn-brokers

thing is most retail fx traders have much smaller $ accounts, based on FXCM's stats from
http://www.fxcm.com/company-profile.jsp , $321,438,398.0 client funds / 150,000 clients =
an average client account of $2,142.92 - hence most fx brokers offer micro accounts

yes there's a difference between the B/A in futures but i don't see it as a cost or a loss if
at the same moment one futures trader fills at 1pip/tick more than the ECN trader, but

what's the difference between the futures/ECN broker commission that's charged ?

i've seen a range between .80 cents to $5 per 100,000 and there's now 'ECN's' that offer
'commission free' accounts — by increasing the spread cost !

ECN spreads might go to zero, but how wide can they go ?

 

[Rhody Trader]

ECN spreads might go to zero, but how wide can they go ?

As wide as any market in which independent bids and offers determine the actual spread, just like in the futures market. In other words, I'm sure spreads widen around volatilty events like data releases, just as they do in any market.

 

[jefftheripper]

%#@! ing market! 3 stops got hit yesterday (barely) then turned my direction and would have made profit. this hasn't been my week. I was thinking my analysis for entry was no longer working till I woke this morning and saw the profit I would have made if my stops were bigger.

Rhody Trader, I'm about to go look for your book and check out Onada (if that's spelled right) and see about doing a demo forex account.

happy new year everyone, may we all earn 1000%....a month.