Why would anyone trade spot fx
- Thread starter ChkitOut
- Start date
Now that the liquidity improved these are pretty much tradable. Just over a year ago 5-7 pip spreads made these pointless for short-term trading. Maybe few people realise how much liquidity improved in these.
Further, crosses (any currency pair that doesn't include US dollar) are hardly traded even in full-size futures.
Also opening an account with a forex broker is easier and doesn't require as much capital. An account to trade CME futures requires $2,500 in capital. Lots of people open forex accounts with $1,000 and under.
Finally, real liquidity for institutional investors lies in the spot market. Like with stocks a large-size buyer tryes to find large-size seller outside public trading venues.
Further, crosses (any currency pair that doesn't include US dollar) are hardly traded even in full-size futures.
Also opening an account with a forex broker is easier and doesn't require as much capital. An account to trade CME futures requires $2,500 in capital. Lots of people open forex accounts with $1,000 and under.
Finally, real liquidity for institutional investors lies in the spot market. Like with stocks a large-size buyer tryes to find large-size seller outside public trading venues.
If you are spread trading, cash currencies allow for more precise hedge ratios than the futures for more modest positions in terms of 'tail risk' management - the futures have notional values typically in $200K and $100K increments. But even with the same notional values, you have to hedge for volatility variances between the instruments.
For example, if a trader can't capitalize or doesn't want the risk associated with a 14x9 futures position, the cash FX would allow for better hedging dynamics than a 2x1 futures position.
Having just mentioned that one exception, I agree that the futures make better sense for just about any other circumstance.
For example, if a trader can't capitalize or doesn't want the risk associated with a 14x9 futures position, the cash FX would allow for better hedging dynamics than a 2x1 futures position.
Having just mentioned that one exception, I agree that the futures make better sense for just about any other circumstance.
The answer is that the liquidity of the micro-contracts still suck. They're barely OK now when the US-markets are active. But even now you have a spread of 4-5 ticks in the CAD or CHF contracts...while if forex you'll pay 1-2 on most ECNs.
if you can trade eur/usd at oanda with 0.9 pips spread and no commissions it doesn't make any sense whatsoever to trade those futures UNLESS you want to trade the news and I bet there isn't any liquidity then either ... So I don't understand people that want to trade those micro-futures ...
Also, in futures there is a higher gap risk - cme closes down for 1 hour, while spot closes only for ~15 mins. And, as mentioned, no liquidity in the crosses.
Besides, spot is just cheaper for price takers. You can trade eur/usd <1 pip/tick all in, while in futures you pay 1 tick minimum + commission. In my opinion, cme should make the move to decimal quoting in the fx complex, like the underlying market did years ago.
Besides, spot is just cheaper for price takers. You can trade eur/usd <1 pip/tick all in, while in futures you pay 1 tick minimum + commission. In my opinion, cme should make the move to decimal quoting in the fx complex, like the underlying market did years ago.
The same way Walmart does. They advertise a special that they will lose money on but they know once you are in the store you are going to buy other stuff. It's a smart strategy.