why trade futures?

[tommog]

Hi,

I am a forex trader and have a pretty good understanding of how futures contracts work however i have never watched a futures trader at work and i am just interested to know why you chose to trade futures? I was naturally drawn to forex trading due the fact its a 24 hour market, the most liquid in the world and due to its 24 hour market there are no opening gap ups/down, but would be interested to know what are the advantages of trading futures over forex? Also, what is it like as a derivitive to trade. Forex offers direct access trading where brokers search bids/offers form 5 market makers, combined with 1pip spreads makes it a great environment for scalping, what are the futures like as a product to scalp?

No particular reason for my asking, i just am fascinated by all things trading related and want to know what im missing out on from the world of futures.

Thanks guys

Tom

 

[LevII]

Hi,

I am a forex trader and have a pretty good understanding of how futures contracts work however i have never watched a futures trader at work and i am just interested to know why you chose to trade futures? I was naturally drawn to forex trading due the fact its a 24 hour market, the most liquid in the world and due to its 24 hour market there are no opening gap ups/down, but would be interested to know what are the advantages of trading futures over forex? Also, what is it like as a derivitive to trade. Forex offers direct access trading where brokers search bids/offers form 5 market makers, combined with 1pip spreads makes it a great environment for scalping, what are the futures like as a product to scalp?

No particular reason for my asking, i just am fascinated by all things trading related and want to know what im missing out on from the world of futures.

Thanks guys

Tom

The following is not my work but that of a person for whom I have great respect. I hope it may assist.

I have no problem with the Forex markets or the participants (traders)...what I have a SERIOUS problem with is how the game is setup to trade the Forex markets... Let me explain:

What I find is that many or most new traders are drawn to this market for the incredibly low margins of 100 to 1...
Clients must have approximately 1% of the value of the positions they hold in their account for each lot of currency being traded (approximately 100:1 leverage). This equates to $1000 per lot (100,000 units), all trades are executed in standard sizes of 100,000 base currency per one lot.

So far, so good... Where the problem starts with trading Forex is the business side of things (Yes, trading is a business and you MUST look at it that way...I'll show you why in a minute).

First lets look at the REAL cost of doing business in this market. I went to one of the Largest Forex broker web pages and pulled these commissions...Whoops did I say commissions, well let me take take back because you Forex traders most certainly do not pay commissions on any trades. That's right, NO COMMISSIONS on FOREX.

You Forex guys get to play another game called "PIP" spread and this my friends is where the problem starts. In Fact, you a better off day-trading Currency Futures rather than Forex:

Currency futures are the futures equivalent of Forex, which is a cash market. The big difference is that you can trade currency futures for under $10 whereas Forex you will pay $30. for a 3 pip spread (If your pip spread is 5 then you $50.) See the chart below to show you the average pip spread on each currency pair

As for a new trader with a small account the typical spread is 5 pips(3 for large account) While you are not paying commissions you most certainly are paying the spread. The spread is the difference between the bid and the ask price. The firm (broker) quoting the spread makes money based on the size of that spread. Remember, if a pip is $10. and your spread is 5 pips, that's $50. commission...Oh, I forgot..there is no commission in Forex...Trust me, nothing is FREE. It's a lot cheaper to trade the Currency Futures...but you're never going to hear that from a Forex broker.

People ask me all the time...why do you trade E-mini S&P's vs. trading Forex. It's real simple: Because it's a lot cheaper and the spreads are smallest of ANY market out there.

I think Forex is fine for LONG-TERM trading (Daily or Weekly) bars because you can absorb the cost of doing business, but to Day-Trade this market...No way, the cost of business is too high and if your a scalper...Good luck!!!

Let me Explain:

If I trade 5 contracts on the E-mini S&P 500 futures my cost is $25.00 ($5.00 per round-turn per contract) X 5 contracts = $25.00.

If I trade 5 GBP / USD Currency Pair my cost is $250.00 ( 5 pips X $10.00 per pip =$50.00) X 5 contracts = $250.00

I can trade Stocks for $10.00 round-trip (but I only have 50% margin).
(I'll bet it was never explained this way, was it?)

Now we have a couple of other minor issues that need to be addressed:

Currency futures are traded at a regulated exchange. Forex is unregulated and traded either through a broker or a bank. Think about this for a second...let's suppose you get a bad fill or you get a price quote that's way out of line with what the trading activity report on time and sales... When you are trading Currency Futures you can go to the exchange and file an arbitration report...they then review the trade in front of board of directors and adjust the problem accordingly. Now, if you have a problem with your Bad fill, bad tick, bad price who are you going to go see to get this adjusted...the Bank? the Broker? Try telling a broker they are wrong on the price and you want an adjustment (meaning they need to eat this trade) and see what happens...ha ha!!!

In currency futures there is no such thing as a "guaranteed fill" With Forex you see "guaranteed fill" advertised all over the place. But this is not good thing. It means the broker is taking the other side of your trade rather than some other trader.

Currency futures gives you true price, Forex does not. Forex prices can be and are manipulated by the broker

Now, as you can see I'm not real big on the Forex market for Day Trading (the odds are stacked against you), if you want to trade the Forex from a Daily or Weekly chart... which is what most Hedge Funds do, then I think it is a good market to trade.

 

[Roberto]

The following is not my work but that of a person for whom I have great respect. I hope it may assist.

When was this written, though?

Some of what you're quoting seems _very_ out of date, but I know the world of Forex dealing moves terribly fast and things change all the time, so maybe it's only really slightly out of date?

I think that what you're quoting makes a number of good and accurate points, and it's really a shame that these are so seriously detracted from by all the factual inaccuracies and apparently historical observations. There's also no mention in it of the fact that there are also other, less expensive ways to trade spot Forex. And the point about counterparty trading, although probably accurate enough in itself, is certainly pretty misleading in what it omits.

The spread figures in the table at the end are certainly remarkable!

Sorry to be "Mr. Churlish" when you've just posted something obviously designed to be helpful in answering someone's interesting question (and I'm sure that it was, too), but you'll obviously appreciate that those of us who successfully daytrade spot Forex for a living are bound to raise our eyebrows to quite a marked degree when reading some of what's above!

 

[LevII]

When was this written

Couple of days ago.

As I said, not my work but I think it makes points worthy of further investigation by those tempted to trade spot forex.

Just trying to assist as best I can.

Mr. NotBeenInvitedToJoinTheMrChartsPrivateForum

PS Don't worry about being Mr Churlish - I've been accused of much worse than that.

 

[Roberto]

Couple of days ago.

Fair enough ... but in that case try to reduce your respect a little for its author, because it's absolutely riddled with inaccuracies and out-of-date information, honestly! (And those spreads ain't 2 days old, I hope!).

I think it makes points worthy of further investigation by those tempted to trade spot forex.

Yes, it does, and some of them are entirely fair comment, and it also serves the purpose for which you quoted it, after all, and in that sense it was admittedly churlish of me to criticise it. Sometimes I come over all "can't let things pass unchallenged" on a Friday night!

Mr. Pedantic

PS Don't worry about being Mr. NotBeenInvitedToJoinTheMrChartsPrivateForum - I've been thrown out of much worse places than that.

 

[peterpr]

.... because it's absolutely riddled with inaccuracies and out-of-date information

Roberto
Could you provide some examples?

I have no problem with Spot FOREX but I do think the piece was potentially v useful to the original questioner. Spot FOREX pitfalls really are deeper and less forgiving than futures IMHO - for two main reasons: gearing and lack of regulation/accountability of the quote provider. Newcomers will benefit from a clear understanding of both.

The points about the potential for your broker to trade against you are valid (in the same way that they are for SB's and non-direct access CFD's). However, it is the standard contract leverage (OK, there are mini contracts available now) that is the real killer. High available leverage can be very seductive to the newcomer, but without rigorous discipline and risk management (concepts which newcomers tend to give just cursory attention too whilst believing they 'have them covered'), it is next to impossible to overcome the gut wrenching emotion of watching a 1000 - 1 leveraged trade move against you, which, of itself pretty well guarantees that you will do the exact opposite of what is needed - with far worse consequences than with futures.

 

[tommog]

hi everyone,

thank you for your replies so far. I agree with what levell said regarding leverage on spot forex which a believe encourages people to play with money they dont have the knowledge to use and the spreads you showed in your table would be ridiculous to try and day trade/scalp from (well beyond my abilities im sure), however, those spreads arent accurate of what you can trade with please look at the following website: http://www.propfx.com/index.html

This company is new (although it is owned by FXCM which i believe is owned by Refco) and offers interbank prices without a broker so you are purely trading direct access, this allows you to scalp the market and arbitrage giving private traders the chance to play on the same pitch as the pros (well thats the dream they are selling at least) i havent joined them yet but intend to do so.

P.S What are spreads like on futures contracts? And do futures brokers offer mini accounts?

 

[ZDO]

tommog,

In currency futures, the 'spreads' are tight (ie fills are great) for the Euro, JY, Bp ...drop off a little for the SF and depending on the day can get a little wider for CD, AD, and then widen significantly for everything else.
Roundturn commissions are $4 - 15 per car for 'retail' accounts

Futures currently have no viable mini currency futures contracts. Minimum futures account size is $2500 ever and usually $5000 and margins for currencies are $2 - 3000 (1/2 for day trades with stop orders in), etc

hth

What are PropFx account size minimums? Went to site but didn't see that info.
thx

And I have a 'stupid' newbie question about FX

Do you pay the PIPS per side or just once?
thx again

 

[tommog]

ZDO,

Thanks for the response, i have done some further research into prop fx and the minimum account size is $25,000 and they only trade in standard lots of $100,000 (no mini) which is $10 per pip, so its definately one for the more advanced traders, but apart form the fact newbies are unlikely to use this platform i think it looks a really good option for short term traders.

Regarding your question about do you pay pips each side of the transaction, that isn't a stupid question you have to understand the spot market is different to futures in the way brokers make their money. In futures you have to pay a fee to buy a contract and then another to sell, so "either side". FX spot doesnt work like that, you have a bid to offer spread which varies on each pair, it is that spread that the broker gets his cut from. SO if for example i wanted to buy the EURO against the dollar at 1.2850 as soon as i opened my position the best i would be able to sell is at 1.2847, there is no extra charge to pay. In other words you buy at a 3 pip premium. I hope that helps

 

[ES_Trader_USA]

Hi,

I am a forex trader and have a pretty good understanding of how futures contracts work however i have never watched a futures trader at work and i am just interested to know why you chose to trade futures? I was naturally drawn to forex trading due the fact its a 24 hour market, the most liquid in the world and due to its 24 hour market there are no opening gap ups/down, but would be interested to know what are the advantages of trading futures over forex? Also, what is it like as a derivitive to trade. Forex offers direct access trading where brokers search bids/offers form 5 market makers, combined with 1pip spreads makes it a great environment for scalping, what are the futures like as a product to scalp?

No particular reason for my asking, i just am fascinated by all things trading related and want to know what im missing out on from the world of futures.

Thanks guys

Tom

Just out of curiosity I would like to know which bank/brokerage are you trading with that offers 1 pip spread?

 

[Rhody Trader]

In futures you have to pay a fee to buy a contract and then another to sell, so "either side".

Actually, futures brokers generally only charge a fee once - a so called round turn commission.

 

[Rhody Trader]

Just out of curiosity I would like to know which bank/brokerage are you trading with that offers 1 pip spread?

I personally haven't see 1 pip in spot forex, but I know you can get 1.5 pips on the majors in some places.

 

[ES_Trader_USA]

I personally haven't see 1 pip in spot forex, but I know you can get 1.5 pips on the majors in some places.

Could you plz give the names of these brokers/banks?

 

[c6ackp]

Could you plz give the names of these brokers/banks?

...last time I looked, oanda.com were showing <= 1.5 pip spread on EUR/USD

 

[BroadSword]

...last time I looked, oanda.com were showing <= 1.5 pip spread on EUR/USD

Yep, and 2.8 on GBPUSD and 2.0 on USDJPY....

 

[rols]

Yep, and 2.8 on GBPUSD and 2.0 on USDJPY....

Considering the title of this thread it seems to have turned into a hunt for saving an imaginary pip here and there.

Reminds me of the response given to somebody asking the Rolls Royce salesman how many miles to the gallon it does.

 

[ammo]

futures

watch them for the day,hand chart them, makes you part of the mrkt,you can see the value areas and sense the momentum and the markets are so deep you can get in and out immediately $250 a point on 1 S&P

 

[Racer]

Considering the title of this thread it seems to have turned into a hunt for saving an imaginary pip here and there.

Reminds me of the response given to somebody asking the Rolls Royce salesman how many miles to the gallon it does.

Costs are a very important part of trading.. so you need to get them as low as possible no matter who you trade with surely?

As for Rolls Royce and fuel economy, you have to think of the environment too

 

[za_xc03]

I want know do futures market can profit from two direction such as Forex (selling and buying) ?
I hope some one can help me :clap: this question often play in my mind because i new for this business ...TQ

 

[Rhody Trader]

Yes, it can. You can just as easily go long as short.