killthesunshine:
there's several differences between futures contracts and trading versus fx trading
first, futures contracts are traded on an exchange, both in a pit - open outcry as well
more recently, 'electronic' trading as it's known, in this case the CME Globex market
'future contracts' is a financial device that's been used for centuries, but retail forex
trading is only a decade or so old, a child of the pc and internet, although foreign
exchange trading has of course also existed for centuries
a futures contract is for a standardized amount and quality, while with many fx brokers
any amount can be specified in the 'lot'
CME's introduction of the M6E - $12,500 Contract and E7 - $62,500 Contract is a
response to the huge retail fx market they are losing out to, they'd like some of that
business and created the smaller than the 6E etc $125,000 contracts, which has
lowered the account margin minimum with AMP Futures for instance from $2,000
to $500 , with daytrading margins for the M6E at $100 and the E7 $250, this makes
them considerably more affordable than the $344 and $1,719 daytrading margin
required to trade those contract amounts with an fx broker
when trading a futures contract o/n - overnight, the daytrading margin increases:
6E from $500 to $4,320 - E7 from $250 to $2,160 - M6E from $100 to $432
when a futures contract is traded, a commission is charged per contract traded and
charged to the account when the trade is closed, for the M6E the round turn comm-
ission via AMP is $1.99 , there is No additional spread charge
however, in addition to the single commission fee which is determined by the broker
alone - not regulated, that fee is fixed, unlike the fx spread fee/commission which is
variable
for instance Oanda's minimum spread on the eurusd is 0.9 pips or $1.125 for the
$12,500 contract/lot size, but, Oanda and all other fx brokers' spread can and does
widen, for Oanda this means it can go to 10 pips and I've seen it at 20 pips, and
while the Oanda spread can change throughout the trading day, the spreads in not
constanty fluctuating - widening and narrowing as it does at most other brokers
also there's the matter of 'news/economic reports/releases' when the spread on fx
trades is guaranteed to widen, that doesn't happen when trading futures contracts
the commission is fixed, it does not widen
E7 $62,000 contract rt commission via AMP is $3.37 , Oanda spread fee is $5.625
6E $125,000 contract rt via AMP is $4.87 , Oanda $11.25 or, $112.50 or, $225.00 -
when the spread widens to 10 pips or 20 pips
there is tho one matter where fx trading wins out against futures trading and that's
'overloss'
overloss is a situation when trading futures that an open losing trade that is not
closed can result in losing more money than is in the trading account, continuing to
increase until the trade is closed, the additional money lost is owed to the broker
fx brokers prevent overloss occurring by closing a losing trade, either when the loss
becomes greater than the margin required for the trade, or, when the loss reduces
the trading account balance to $0.00
