Why would anyone trade....
- Thread starter PohPoh
- Start date
I think today's trading war links the relationship among forex, bonds, energy and stock market...
Because of that 'l' word... what is it? love? no..
umm...
Oh yeah.. LEVERAGE..
umm...
Oh yeah.. LEVERAGE..
minimum sizes sub 125k notional?
I saw so many posts with the same discussion. Here is my two cents. I am strongly in favor of spot forex over traded futures which does not preclude I entirely stay away from forex futures. Again, as some pointed out, it also depends to a large degree on your trading style.
1) Liquidity. As simple as that. This comes to play when you have fast moving markets. Watch the futures how they trade versus spot cash. You will see that the futures move much more erratically when some big guys move a certain pair by several points within 1-5 seconds or shortly after econ releases. This is no problem for longer-term traders but for the day guys it is. Also, the spread that I am getting with cash is absolutely superior to the futures spread. Again: Liquidity. I sometimes can trade choice markets in cash which I never could with futures.
2) Carry. Carry is built into the futures price prior to settlement, however, whereas carry is compute for cash on a daily basis and settled in a separate way, too (at least with my broker). This makes everything crystal clear and keeps accrued interest credits/debits separated from rate moves. I prefer it this way.
3) Trading hours. Not sure about futures but I think there is a short time-out each day for the Globex contracts isnt it? Sorry if I am wrong here because I never daytrade forex so I dont care at all about those 15 minutes or so. However, not having to worry about any trading pause/halt is a minor plus in favor of cash. Remotely related to this is the need to roll over your futures prior to settlement which you dont need to worry about with cash. Again minor point but noteworthy.
4) Leverage. Also, I dont care much about it because I am very conservatively leveraged. But cash definitely CAN (fully depends on your broker) give you way more leverage than futures. I stress here that this depends on the broker not the product itself. My broker offers relatively low leverage which I am fine with and its about on an equal footing with futures (initial/maintenance margin vs contract size).
5) Safety. This definitely goes to the futures "camp". As they are exchange traded products the risk of counterparty default is virtually absent. On the other side, depending which broker you are using, they might go belly up any time and gone are your funds with it.
In the end for me it all comes down to liquidity. If I can chose different products on the same market then I always wanna go with the more liquid one. Guys, ask yourself this question: Why do all the big guys/banks/hedge funds primarily trade cash vs the futures? Liquidity!!! (plus they are used to trade cash and all traders are lazy in migrating to new things when old things work well, I think). This may change in the future but for now cash is king I think (in forex markets, I mean)
1) Liquidity. As simple as that. This comes to play when you have fast moving markets. Watch the futures how they trade versus spot cash. You will see that the futures move much more erratically when some big guys move a certain pair by several points within 1-5 seconds or shortly after econ releases. This is no problem for longer-term traders but for the day guys it is. Also, the spread that I am getting with cash is absolutely superior to the futures spread. Again: Liquidity. I sometimes can trade choice markets in cash which I never could with futures.
2) Carry. Carry is built into the futures price prior to settlement, however, whereas carry is compute for cash on a daily basis and settled in a separate way, too (at least with my broker). This makes everything crystal clear and keeps accrued interest credits/debits separated from rate moves. I prefer it this way.
3) Trading hours. Not sure about futures but I think there is a short time-out each day for the Globex contracts isnt it? Sorry if I am wrong here because I never daytrade forex so I dont care at all about those 15 minutes or so. However, not having to worry about any trading pause/halt is a minor plus in favor of cash. Remotely related to this is the need to roll over your futures prior to settlement which you dont need to worry about with cash. Again minor point but noteworthy.
4) Leverage. Also, I dont care much about it because I am very conservatively leveraged. But cash definitely CAN (fully depends on your broker) give you way more leverage than futures. I stress here that this depends on the broker not the product itself. My broker offers relatively low leverage which I am fine with and its about on an equal footing with futures (initial/maintenance margin vs contract size).
5) Safety. This definitely goes to the futures "camp". As they are exchange traded products the risk of counterparty default is virtually absent. On the other side, depending which broker you are using, they might go belly up any time and gone are your funds with it.
In the end for me it all comes down to liquidity. If I can chose different products on the same market then I always wanna go with the more liquid one. Guys, ask yourself this question: Why do all the big guys/banks/hedge funds primarily trade cash vs the futures? Liquidity!!! (plus they are used to trade cash and all traders are lazy in migrating to new things when old things work well, I think). This may change in the future but for now cash is king I think (in forex markets, I mean)
Say you have a strat based on round numbers, eg buying a bounce off 1.2500 etc. This wont work as well in the futures market (to trade this in the futures you would have to watch the cash market but trade the futures which is a bit silly and artificial).
Also if you trade pairs that are not liquid or dont exist on CME, its easier to have just a single account with a good FX broker even for trading the pairs that are liquid on CME.
What is rarely crystal clear, however, is what cut of the IRD your bank/broker is taking from you. Futures reflect the true IRD, which you will never find offered by any spot broker. You pretty much have to be a bank yourself to get the same deal offered via fx futures. This is a moot point for the intraday trader, but for the large-size position trader, it REALLY adds up quickly.
Yes, 5-6pm EST they are closed. It is a cumbersome issue if you trade Aussie or Kiwi as they can be quite active during that hour..
True. Margin for the most of the fx futures is ~1.4%, or ~70:1. I'd say half spot brokers are 50:1 and the other half are 100:1 (for accounts >$50k).
I had similar concerns at first. The issue to keep in mind is that the fx futures markets are heavily arbed to spot. Thus, liquidity is not a problem even if the trading volume is minuscule vs spot. I've traded 100 lot orders in the middle of the night on otherwise quiet fx fut books and had no slippage and quick fills.
you missed a quite obvious difference : SIZE
cash based forex allows on to trade much smaller SIZE than the futures contract.
iow, one can establish a position that has a much smaller $ value per pip than in futures. for the small trader (which is what cash forex targets) that should be quite obvious.
cash based forex allows on to trade much smaller SIZE than the futures contract.
iow, one can establish a position that has a much smaller $ value per pip than in futures. for the small trader (which is what cash forex targets) that should be quite obvious.