spot forex and futures? whats the benefit? futures brokers are much cheaper?
Wednesday, February 19, 2014
, Posted by Ryanita at 1:59 PM
David C
Hi
FXCM has been recommended to me for trading spot forex currency pairs.
I mainly trade emini futures through a futures broker at $4.75 per contract per round trip.
It seems much more expensive in the spread commission of 3 pips to trade currency pairs through FXCM to get the same profit per pip.
What is the benefit of using FXCM or any other spot broker when I can just get $4.75 per round trip through a futures broker, I just can't see the point of paying a 3 pip spread.
Am I missing something?
Julia dear, please stay in Africa if you have nothing relevant to contribute.
Answer
The only real advantage of Forex vs. currency futures is that Forex allows you to scale as small as you want to trade, while futures is only available with a contract size that may be too large for many accounts to safely handle. A person with a smaller account may find the ability to trade even a fractional micro-lot reason enough to switch.
Perceived advantages may include the increased liquidity of the major pairs on spot vs futures, but in reality the other side of your position is almost always taken by your forex broker, because he expects and usually wants you to lose.
Another advantage some point to is that it is much less likely to run through a stop in Forex than in futures, but at the same time I would submit that it is much more likely that the Forex shops would shade the price enough to trigger stops just to take their customers out of trades, which you don't see on the regulated futures exchange.
Some say that forex has no commissions, but in reality, as you have noted, the spread is much more expensive than the commission.
Others point to the fact that you can open a Forex account at many firms for less than $100 and receive 400-1 margin, however, could also be suicidal to your account to use this type of leverage.
I have traded Forex for many years and educate traders as well, and I would encourage all of my clients to stick with the futures unless their account is under $10k. I have noticed that the business has become increasingly dishonest - there are only a couple of shops that are truly legitimate - one, Dukascopy, is excellent, but is increasingly difficult for Americans to deal with since the IRS crackdown on Swiss accounts and requires a very large minimum account size. I switched to currency futures two years ago and you couldn't pay me to go back to Forex.
The only real advantage of Forex vs. currency futures is that Forex allows you to scale as small as you want to trade, while futures is only available with a contract size that may be too large for many accounts to safely handle. A person with a smaller account may find the ability to trade even a fractional micro-lot reason enough to switch.
Perceived advantages may include the increased liquidity of the major pairs on spot vs futures, but in reality the other side of your position is almost always taken by your forex broker, because he expects and usually wants you to lose.
Another advantage some point to is that it is much less likely to run through a stop in Forex than in futures, but at the same time I would submit that it is much more likely that the Forex shops would shade the price enough to trigger stops just to take their customers out of trades, which you don't see on the regulated futures exchange.
Some say that forex has no commissions, but in reality, as you have noted, the spread is much more expensive than the commission.
Others point to the fact that you can open a Forex account at many firms for less than $100 and receive 400-1 margin, however, could also be suicidal to your account to use this type of leverage.
I have traded Forex for many years and educate traders as well, and I would encourage all of my clients to stick with the futures unless their account is under $10k. I have noticed that the business has become increasingly dishonest - there are only a couple of shops that are truly legitimate - one, Dukascopy, is excellent, but is increasingly difficult for Americans to deal with since the IRS crackdown on Swiss accounts and requires a very large minimum account size. I switched to currency futures two years ago and you couldn't pay me to go back to Forex.
what is meant by forex trading?what is meant by futures and options?
binesh2000
forex trading means trading in foriegn exchange.
Answer
So i guess you know what forex trading is.
Futures and options and forwrds, the easiest, are a kind of derivatives. Derivatives are a financial instrument whose value derives form the value of other, more basic underlying assets.
Now, forwards are contracts in which the price of a commodity or currency is set for the future. It has to do with expectations of the market, and how the market thinks, based on information today, the price of those commodities or currencies will be in a certain date.
Lets say the exchange rate of mexican pesos for us dollars today is $11.09. That´s the spot exchange rate. Now, lets say you and i agree that in june 2006, im your gonna sell me american dollars at an exchange rate of $11.1828. If my expectation is the peso will be higher, im gonna make a deal with you. So, the future of the pedo, for june 2006 will be $11.1828. Imagine our deal, but not made between us, but between thousands of dealers, in the Chicago MArket.
Companies use futures a lot as a way to protect themselves. I believe in english its called hedging. If an american firm sells water tanks to a firm in France, but the payment isnt due untill 45 days later, both companies would like to agree to make the exchange of euros for us dollars at a future exchange rate. That way they now exactly how much they owe or get. The same with commodity prices. A future of the price of oil is nothing more than a contract agreeing on the future price of the transaction. Funny thing is, you and i can agree on an oils future contract, where im selling and your buying, but the barrel of oil is never transacted. What we do is, lets say the future price of oil for august is $73 usd. im selling, you are buying, and we agree on that price. Come august 31st, the real price of oil is $78 usd. since you are buying, you win $5 bucks per barrel right? And i lose % per barrel... so instead of giving you a barrel of oil you cannot even store, i just give you $5 per barrel. _If the real price had been $65, i would have won $8 per barrel, and you lose $8 per barrel.
The same with futures. MAjor difference with forwards is that an exchange of assets is required. Contracts are pretty much standarized. The delivery, kind and quality of product, etc is all defined. Largest exchanges are made in the Chicago Board Trade. Futures include a los of prodcts... live cattle, sugar, coffee, gold, cooper, aluminium, etc.
Options are a little bit harder. There are 2 basic type of options: call options, giving the holder the right, option, to buy an asset at a certain date at a certain price. Put options, giving the holder the right, option, to sell an asset at a certain date at a certain price. For example, lets say i buy a call option to buy in 3 months stock of yahoo. The actual price is, just an example, $10 bucks, and my call option gives me the option to buy at $12. The price to buy that option for 1 share of yahoo is worth $1. If 3 months pass, and the price of the stock is $11, i certainly wont take my option to buy the stock and lose $1, the initial investment on the option. But if the real price is $15, im going to take my option, buy the stock at $12 and sell it at $15, earning $2.
Just be careful cause there are american options and european options... european options can only be excersied at the end of the contract, ehile american options can be excercised whenever in the life of the option.
So i guess you know what forex trading is.
Futures and options and forwrds, the easiest, are a kind of derivatives. Derivatives are a financial instrument whose value derives form the value of other, more basic underlying assets.
Now, forwards are contracts in which the price of a commodity or currency is set for the future. It has to do with expectations of the market, and how the market thinks, based on information today, the price of those commodities or currencies will be in a certain date.
Lets say the exchange rate of mexican pesos for us dollars today is $11.09. That´s the spot exchange rate. Now, lets say you and i agree that in june 2006, im your gonna sell me american dollars at an exchange rate of $11.1828. If my expectation is the peso will be higher, im gonna make a deal with you. So, the future of the pedo, for june 2006 will be $11.1828. Imagine our deal, but not made between us, but between thousands of dealers, in the Chicago MArket.
Companies use futures a lot as a way to protect themselves. I believe in english its called hedging. If an american firm sells water tanks to a firm in France, but the payment isnt due untill 45 days later, both companies would like to agree to make the exchange of euros for us dollars at a future exchange rate. That way they now exactly how much they owe or get. The same with commodity prices. A future of the price of oil is nothing more than a contract agreeing on the future price of the transaction. Funny thing is, you and i can agree on an oils future contract, where im selling and your buying, but the barrel of oil is never transacted. What we do is, lets say the future price of oil for august is $73 usd. im selling, you are buying, and we agree on that price. Come august 31st, the real price of oil is $78 usd. since you are buying, you win $5 bucks per barrel right? And i lose % per barrel... so instead of giving you a barrel of oil you cannot even store, i just give you $5 per barrel. _If the real price had been $65, i would have won $8 per barrel, and you lose $8 per barrel.
The same with futures. MAjor difference with forwards is that an exchange of assets is required. Contracts are pretty much standarized. The delivery, kind and quality of product, etc is all defined. Largest exchanges are made in the Chicago Board Trade. Futures include a los of prodcts... live cattle, sugar, coffee, gold, cooper, aluminium, etc.
Options are a little bit harder. There are 2 basic type of options: call options, giving the holder the right, option, to buy an asset at a certain date at a certain price. Put options, giving the holder the right, option, to sell an asset at a certain date at a certain price. For example, lets say i buy a call option to buy in 3 months stock of yahoo. The actual price is, just an example, $10 bucks, and my call option gives me the option to buy at $12. The price to buy that option for 1 share of yahoo is worth $1. If 3 months pass, and the price of the stock is $11, i certainly wont take my option to buy the stock and lose $1, the initial investment on the option. But if the real price is $15, im going to take my option, buy the stock at $12 and sell it at $15, earning $2.
Just be careful cause there are american options and european options... european options can only be excersied at the end of the contract, ehile american options can be excercised whenever in the life of the option.
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