Currency Futures Vs Forex
Forex vs Futures
The global foreign exchange market is the biggest, the most active market in the world. Trading in currency markets takes place nearly over all day with more than one trillion U.S. dollars changing hands every day. It is the main event.
The benefits of currency on the currency futures trading are considerable. The differences between the two instruments broad philosophical realities such as the history of each, they are addressed and their importance in foreign exchange markets modern, more tangible issues such as transactions fees, margin requirements, access to liquidity, ease of use and technical and educational support offer each service providers.
These differences are detailed below:
1) More Volume = liquidity better. volume of daily currency Ahead on the CME is just 1% of the volume seen every day in currency markets. Incomparable liquidity is one of the many advantages that the foreign exchange markets on future control currency. Truth be told, this is old news. Any currency professional can tell that the money has been king since the dawn of the modern currency markets early 1970's. The real news is that individuals of every risk profile now have full access to the opportunities available in foreign exchange markets.
2) Forex Markets offer tighter bid to offer spreads than currency futures markets. Inverting the futures price to compare with cash, you can easily see that the USD / CHF example above, inverting the future price deal from 0.5894 to 0.5897 turns into a cash price of 1.6958 to 1.6966, 8 pips against the five-pip spread available in the markets for cash.
3) Forex markets offer higher leverage and lower margin rates are in trade in currency futures. When trading currency futures, traders have one margin rate for "day" and one for operations "overnight" positions. These margin rates can vary depending on the size of the transaction. The currency trading gives the customer a fee all the time, day and night.
4) The foreign exchange markets using easily understood and universally used terms and price quotes. Currency futures quotes are investments of the cash price. By example, if the spot price for USD / CHF is 1.2600/1.2605, the futures equivalent is .7933 / .7937, a methodology followed only in the limits of negotiation futures.
Currency futures prices have the added complication of including a forward foreign exchange component that takes into account a time factor, interest rates and interest differentials between various currencies. Currency markets require no such adjustments, mathematical manipulation or consideration for the component of interest rate futures contracts.
5) The negotiations conducted through the Forex Market are almost always without charge. Future Currency has been added to the baggage of trading commissions, exchange rates and rates of compensation. These fees can add up quickly and seriously eat profits of a trader.
By contrast, currency futures are a small part of a much broader market, one that has undergone historical changes in past decade.
6) Currency futures contracts (called IMM contracts or international monetary market futures) were created in the Chicago Mercantile Exchange in 1972.
7) These contracts were created for market professionals, who at that time, accounted for 99% of turnover generated in foreign exchange markets.
While some intrepid individuals did speculate in currency futures, highly trained specialists dominated the pits.
9) Instead of becoming a hub of world currency, the currency futures became more of a sideshow (relative to the cash markets) for hedgers and arbitristas to hunt small momentary anomalies between cash and futures prices of foreign exchange.
10) In what appears to be a permanent rather than cyclical change, fewer and fewer of these arbitrage windows are opening these days. And when they do, they were immediately closed by a swarm of professional dealers.
These changes have significantly reduced the number of currency futures professionals, closed the window into the currency arbitrage opportunities against future and even far, have paved the way for more orderly markets.
And while a more balanced environment is poison to the P & L of a currency futures trader, has been the way through the maze for individuals to trade in foreign exchange markets.
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Martin Chandra
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DAY TRADING SYSTEM FOR THE CURRENCY AND FUTURES/FOREX MARKETS AROUND INSTITUTIONAL NUMBERS 11-25-09
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