Forex futures vs spot fx. Which is cheaper to hold a forex position over a year?

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learner88

When holding a forex position over a longer term period such as several months, the cost incurred is the interest charges for the leverage and rollover commission fees for forex futures. Spot forex does not have cost like rollover fees. However, I get the impression that spot forex brokers generally charge higher interest for the leverage. Is this true? Futures are regulated while spot fx is unregulated. While I do not have the data, my worry is that spot fx brokers will charger high interest for the sake of profits since they are unregulated.

I use Interactive Brokers. How does interest charged by IB compare with the interest charged from holding forex futures?

When holding a forex position over a long-term period of several months to a year, which is cheaper option? Forex futures or spot fx?

Please exclude the effects of taxes.
 
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learner88 said:
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I use Interactive Brokers. How does interest charged by IB compare with the interest charged from holding forex futures?

When holding a forex position over a long-term period of several months to a year, which is cheaper option? Forex futures or spot fx?

Please exclude the effects of taxes.
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Hmm, this is a confusing question. Do you mean, for example, the difference between holding a Eur/USD pair in "spot FX" compared to holding a similar position in 6E on the CME?
 
Overnight said:
Hmm, this is a confusing question. Do you mean, for example, the difference between holding a Eur/USD pair in "spot FX" compared to holding a similar position in 6E on the CME?
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Sorry for not being specific. That would be a good specific question to answer. THank you.
 
learner88 said:
Sorry for not being specific. That would be a good specific question to answer. THank you.
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No need to get smarmy and sarcastic. I was just wondering about the whole interest thingy. Umm, no, there is no interest charged on your positions while holding futures contracts at the CME. Because you are not holding anything tangible...You are only promising or agreeing to do so in the future. That's why they are called futures.

When holding a forex position over a long-term period of several months to a year, which is cheaper option? Forex futures or spot fx?
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Well, I do not know how it works in "spot FX", but you cannot hold a position in something like the 6E for a year unless you roll the contracts. So while there is no interest charged, you will get screwed on rolling your losses (or making hay on rolling your profits) from contract to contract.

Here, do some research. It might help guide your decision.

https://www.cmegroup.com/trading/fx/g10/euro-fx_quotes_globex.html
 
Certainly not being sarcastic. I'm grateful for everyone who take time to reply:)

To my knowledge, the interest charges are built into the price of the futures. The question is whether it is lower or higher than that charged by spot fx.

Overnight said:
No need to get smarmy and sarcastic. I was just wondering about the whole interest thingy. Umm, no, there is no interest charged on your positions while holding futures contracts at the CME. Because you are not holding anything tangible...You are only promising or agreeing to do so in the future. That's why they are called futures.

Well, I do not know how it works in "spot FX", but you cannot hold a position in something like the 6E for a year unless you roll the contracts. So while there is no interest charged, you will get screwed on rolling your losses (or making hay on rolling your profits) from contract to contract.

Here, do some research. It might help guide your decision.

https://www.cmegroup.com/trading/fx/g10/euro-fx_quotes_globex.html
More...
 
definitely futures.

there was a similar thread the other day about this and this dude kept hammering on about how there's no difference beteen futures and forex.....except his entire argument hinged on the assumption that you were with a forex broker that didn't engage in shady shit with rollover interest. why place trust on your broker when a better alternative exists? and esp if you're a US citizen, those select brokers are prob not accessible to you in the first place.

unless you require a shitton of liquidity or non-USD pairs, then there's just no reason to take the risk with spot forex.

it is true that you'll have to rollover 3 times with futures so i guess spot forex has at least that going for it.
 
You can take contracts and when the expiration approaches close the future and open a new one at a better price. You need however to be able to read the trend to do this. You might even make extra money instead of paying costs.

Futures are much better regulated then spot. Less possibility to cheat.
 
Futures & Forex has their own pros & cons. Pro currency traders often use both depending on the trade at hand. I have seen just as much if not more thuggery on the futures market - HFT's making wild swings during lower liquid times to run stops, while spot was not effected. Or the occasional flash crash on the futures exchange.

With Fx its a good idea to trade inside of regulated countries like the U.S., U.K., Japan, Canada, & Singapore. Its crucial to find a highly reputable tier1 broker with a good regulatory/compliance/arbitration track record. This will make counter-party risk very unlikely unless maybe your some elephant like Soros.

With futures currencies I can often get lower trading costs on this market - but it is really limiting as to what pairs can be traded, position sizing & the added cost/risk/hassle if the contract expires while in the trade. Trading both futures & Fx broadens my opportunities.

Retail traders tend to trade way over leveraged. The cool thing with Fx you can size your trades appropriately.
 
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Overnight said:
There is no interest charged on holding a Forex Future at the CME.
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CME is not charging interest rate, but that carry is built into the FX futures. That carry matters since he is not daytrading and holding for one year.

Attractiveness of FX future is much better rate than most of the bucket shops, but there is roll cost involved (might be meager, but depends on the size of the holdings)
https://www.cmegroup.com/education/files/understanding-fx-futures.pdf
 
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