Spot vs Futures

[CHRISTO9HER]

Hi guys,

I am wondering why there is so much focus on spot FX, as opposed to futures.

Everyone is always complaining about the spot FX market, with its bucket-shops and the limited and expensive range of ECNs, so why dont more people trade the CME futures instead?

I have been trading spot FX for a little while now, and am starting to wonder why I don't switch to trading the futures contracts instead.

The disadvantages of the spot FX market are obvious, is there some disadvantage to the FX futures market that I am missing?

BTW, I am looking to trade short time frames.

Thanks guys,

Chris

 

[rnicoll]

The only real issue with futures is having to predict that far ahead. If you've got a strategy that works, though, go for it!

 

[CHRISTO9HER]

The only real issue with futures is having to predict that far ahead. If you've got a strategy that works, though, go for it!

Thanks for the reply.

I'm not sure that is entirely correct though. Futures can be closed out just as quickly as anything else. In fact, I understand that most of the shortest possible time-frame traders use futures. Just becasue it is called a future it doesn't mean that you have to hold it until delivery date!!

What I am asking, is why don't more people use them? And if I am looking to trade a decent size fx account on short time frames, then are the CME currency futures my best bet?

On the CME euro future, 1 contract means $12.50 per pip. The spread is tiny, you can try to trade on the advantageous side of the spread, and transaction costs are less than $5 per round trip. This is less than half a pip. i.e. if you make one pip you have still made a profit.

The only possible downside that I can see is that you have to pay for the CME live data. I have been looking at tradestation. If you make 10 round trips per month, you get the trading platform for free. The CME data is $55 per month.

So for $55 dollars a month I can leave behind all the woes of the bucket shops and spread betters, should I do it?

I would be particularly interested in hearing from anyone who has first hand experience of both the spot and futures FX market and can point out some of the pros and cons.

Cheers guys

Chris

 

[new_trader]

So for $55 dollars a month I can leave behind all the woes of the bucket shops and spread betters, should I do it?

Hi Chris,

I don't trade FX, but in answer to your question, I would say YES, DEFINITELY GO DMA.

Take a look at:

Openecry

Online Futures Trading - Open E Cry ™ a Direct Access Trading System

I trade with them and there are no platform fees or data fees. NO HIDDEN FEES AT ALL (at the time of writing). Openecry was recently acquired by:

Options Express

Online Options, Stock and Futures Investing at optionsXpress

who also claim: "World class platform, no hidden-fees and a new account in only moments."

 

[new_trader]

Good! And STAY OUT!

 

[a_gnome]

I'd like to keep this thread going (and to put it back on track) as I think it's an interesting topic. As GJ has already said the main disadvantages with trading futures are:

1. Less liquidity
2. Only a few currency pairs are actually available.

However, there are people market-making in the major rates on CME and if you are not looking to do large size and are only interested in the majors then there are some definite advantages to trading in this way:

1. No conflict of interest that occurs with bucket shops
2. Genuine fair pricing at all times
3. Can join the bid or ask.

The other alternative of course is to go the ECN route (e.g. Hotspot or Currenex). This has the same advantages as listed above and the chance to trade the various cross rates in decent size.

One point that you may want to be careful about if trading the CME futures is using stop orders. My impression is that at certain times of the trading day whilst the futures market quotes fairly reflect the current price levels in spot, there are not many actual trades occurring. This means that if you have a stop order which IIUC is triggered by an actual trade at or beyond your price level, you may not get triggered for some time. You would need to work your own pseudo stop which you trigger yourself if the quote goes beyond the level (á lá spot forex). Perhaps someone who actually trades the CME futures could verify whether what I am saying is correct.

 

[CHRISTO9HER]

Hi Chris,

I don't trade FX, but in answer to your question, I would say YES, DEFINITELY GO DMA.

Take a look at:

Openecry

Online Futures Trading - Open E Cry ™ a Direct Access Trading System

I trade with them and there are no platform fees or data fees. NO HIDDEN FEES AT ALL (at the time of writing). Openecry was recently acquired by:

Options Express

Online Options, Stock and Futures Investing at optionsXpress

who also claim: "World class platform, no hidden-fees and a new account in only moments."

Thanks for the tip, I have just set up a demo account with them in the last few minutes and it looks great. Even on the demo, the functionality appears to be very good. I heard some negative reviews on the internet concerning connectivity issues in early 2008, did you have any problems with this? And it looks like you are right, no hidden charges.

The only thing that I could not find out from the website/demo platform is the commissions. Would you be able to give me an indication of what the commissions are likely to be? If it helps, I will be trading in quite small size, less than 10 contracts per day in average probably. Is it a standard rate for all contracts?

I have been considering for a while now switching from GBPUSD to trading the FTSE future. Do you know what the comms are likely to be on this contract?

Thanks for your help

Chris

 

[Rhody Trader]

As GJ has already said the main disadvantages with trading futures are:

1. Less liquidity
2. Only a few currency pairs are actually available.

I would add in less position size flexibility since futures lot sizes are fixed and larger than what can be had in the spot market.

Also, total transactions costs could be higher given commission + spread (yes, there are spreads in the futures market, just like every other one).

 

[new_trader]

Thanks for the tip, I have just set up a demo account with them in the last few minutes and it looks great. Even on the demo, the functionality appears to be very good. I heard some negative reviews on the internet concerning connectivity issues in early 2008, did you have any problems with this? And it looks like you are right, no hidden charges.

The only thing that I could not find out from the website/demo platform is the commissions. Would you be able to give me an indication of what the commissions are likely to be? If it helps, I will be trading in quite small size, less than 10 contracts per day in average probably. Is it a standard rate for all contracts?

I have been considering for a while now switching from GBPUSD to trading the FTSE future. Do you know what the comms are likely to be on this contract?

Thanks for your help

Chris

Hi Chris,

I again want to make it clear that I am not trading FX with them; I do not trade FX at all. I trade ES futures (E-mini S&P500) and the commission on low volume is US$5.80/RT per contract. I can find out what the commission is on FTSE for you, if and when I remember. But you can chat with them via their live online help (which is all I would do anyway) and I'm sure they will tell you. I don't know how/if it these costs will change now that options express has acquired them. When I last spoke to them they assured me it will be business as usual.

Yes, I did experience connectivity problems but they have resolved them. I stay connected to them 24/5 and I rarely have any connectivity issues. I would say their up time is better than 99.99%. In addition to this, their technical staff are very, very helpful.

Also, if you are tech savvy, you can write your own bespoke trading application either in C# or in Visual Basic if you want to trade with Excel (By far the easiest). They provide sample programs to help.

 

[Paul71]

Hi guys,

I am wondering why there is so much focus on spot FX, as opposed to futures.

Everyone is always complaining about the spot FX market, with its bucket-shops and the limited and expensive range of ECNs, so why dont more people trade the CME futures instead?

I have been trading spot FX for a little while now, and am starting to wonder why I don't switch to trading the futures contracts instead.

The disadvantages of the spot FX market are obvious, is there some disadvantage to the FX futures market that I am missing?

BTW, I am looking to trade short time frames.

Thanks guys,

Chris

Most people on here look to the bucketshops, and why not if you trade 5 pence a point on the micro lots, it's not such an expensive hobby then, is it?

If you want to get serious though use futures through DMA.

But don't bother with DMA if you're just gonna swing 1 lot, that's for the bucketshop donkeys.

Good luck.

 

[MrGecko]

Chris,

If you choose to trade futures on FX (which I don't think is worth it btw), be sure to understand how they are priced - ergo you might need to have an idea about the term structure of expected interest rates for both currencies in the pair. Not that this should be hard to do, but if the market perceives a rate hike earlier than previously after some statement, or minutes etc... during the life of the future, this will change the "fair value" of the future for delivery of spot. Also, you should keep an eye out for arb. opportunities, not to trade them, but to make sure you are trading the future at a fair rate.

Anyway, I'm not really sure why you'd bother.

Tick sizes on the future are fixed, where through spot you can tailor the deal size to fit your R:R as your balance grows - you would need to double your balance to trade 2 futures contracts and not knock your R:R out (given the same trade). Sure minimum DMA deal size might be $100,000, but you can increment that to $110,000, $120,000 etc... with some brokers, instead of the $100k, $200k lots through the futures.

Secondly, others have mentioned the liquidity issue. Again, as your account size and trade size grows, you might well find you struggle to get quick fills in the futures where the spot liquidity won't ever be an issue.

Trading spot means you don't have to ar$e about with exchange fees and futures platforms, leaving you with much more options in terms of charting packages etc...

You get far more pairs to trade through spot over futures

Trading Spot needn't mean trading through a Spreadbetter - you can get DMA to a liquidity pool such as Hotspot, so still post bids and offers to get inside prices.

Lastly, if you are considering the use of futures for access to the orderbook for scalping, then FX is the wrong product - it's still an OTC market, so it's practically impossible for you to get an idea of where the buyers and sellers at size are unless you've got a mate at a bank. Even then, scalping for a tick here and there leaves you trading noise and nothing else.

So, if you want to trade FX, then sure spot DMA would be my preference over futures (fyi the "tick size" on a standard lot is about $10, depending on the pair). But if you want to scalp off 1min charts (think you mentioned this elsewhere), then FX is totally the wrong product.

Of course, this is all JMHO.