Currency futures - why?

V

Vortex

Hello!

This may seem like a strange question - but why do, or why would traders or institutions trade currency futures at all, as opposed to simple spot? What is the advantage? Surely spot is simpler and more liquid?

Much appreciated for any thoughts. I am an old hand at spot fx, but a total newbie at futures. :confused:

Thank you! :)
 
Quote from Vortex:

Hello!

This may seem like a strange question - but why do, or why would traders or institutions trade currency futures at all, as opposed to simple spot? What is the advantage? Surely spot is simpler and more liquid?

Much appreciated for any thoughts. I am an old hand at spot fx, but a total newbie at futures. :confused:

Thank you! :)
More...

One reason is that "Spot" does not exist. Forex is unregulated, so it is not "there" as in organized, a lot depends what banks you have available.

Second is that it is unregulated. Futures follow a well published reginme with an ordery independant maintained market.
 
Quote from NetTecture:
One reason is that "Spot" does not exist. Forex is unregulated, so it is not "there" as in organized, a lot depends what banks you have available.

Second is that it is unregulated. Futures follow a well published reginme with an ordery independant maintained market.
More...
That doesn't make sense... How do you think futures get priced?

You trade ccy futures, because a) you don't have access to good spot FX liqudity; b) your don't get paid the right carry by your spot FX broker; c) you don't like the 2-day counterparty settlement risk.
 
Quote from Martinghoul:

That doesn't make sense... How do you think futures get priced?
More...

By the exchange in an orderly fashion. The point with Forex for example is that you do not ahve ONE system processing the trades. Fuures is independant (i.e. not owned by your broker, regulated etc.) and makes sure the playing field is well known before AND everyone follows the rules.

Many smaller forex brokers may skip / report bad trades, delay orders to "match them themselves", may give you a worse price than the counterparts has.

With futures it is regulated, the exchagne does not earn on the trade (only on the fees), the broker can not manipulate the price you see etc. Check what for example MetaTarder has for wonderfull add ins for the BROKER side to deal not so nicely with custoemrs. Running those on futures wuold be highly illegal.
 
Quote from NetTecture:

One reason is that "Spot" does not exist. Forex is unregulated, so it is not "there" as in organized, a lot depends what banks you have available.

Second is that it is unregulated. Futures follow a well published reginme with an ordery independant maintained market.
More...

I think I understand what you are saying, but would this problem apply to a large institution or professional fund as well? I mean those who trade with the tier-one banks (the big ones)?

I assume you are likely referring to the small retail player who are at the mercy of the trading platforms?

Thanks for your input!
 
Ah - ok I see you have adressed this already in a way in the previous post. I get you now.

As far as you can tell, is this the major (only) advantage?

Thank you!
 
Quote from Martinghoul:

That doesn't make sense... How do you think futures get priced?

You trade ccy futures, because a) you don't have access to good spot FX liqudity; b) your don't get paid the right carry by your spot FX broker; c) you don't like the 2-day counterparty settlement risk.
More...

Thank you Martinghoul! :)
 
Quote from Vortex:

Ah - ok I see you have adressed this already in a way in the previous post. I get you now.

As far as you can tell, is this the major (only) advantage?

Thank you!
More...

There is also cuonterparty risk. With Forex you make specific deals with counterparties - what you do when this blows?

With Futures your counterparty is always the exchange.
 
Quote from Vortex:

Hello!

This may seem like a strange question - but why do, or why would traders or institutions trade currency futures at all, as opposed to simple spot? What is the advantage? Surely spot is simpler and more liquid?

Much appreciated for any thoughts. I am an old hand at spot fx, but a total newbie at futures. :confused:

Thank you! :)
More...

eur/usd seems to be the only liquid future that can be day traded.

the others dont seem to have much volume.
 
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