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forex futures
The global
foreign exchange market is the largest, most active market in the world.
Trading in
the forex markets takes place nearly round the clock with over $1 trillion
changing
hands every day. It is the main event.
The
benefits of forex over currency futures trading are considerable. The
dissimilarities
between the two instruments range from philosophical realities such as
the
history of each, their target audience, and their relevance in the modern forex
markets,
to more tangible issues such as transactions fees, margin requirements,
access to
liquidity, ease of use and the technical and educational support offered by
providers
of each service. These differences are outlined below:
• More Volume = Better Liquidity. Daily currency futures volume on the CME
is just 1%
of the volume seen every day in the forex markets. Incomparable
liquidity
is one of many advantages that forex markets hold over currency
futures.
Truth be told, this is old news. Any currency professional can tell you
that cash
has been king since the dawn of the modern currency markets in
the early
1970's. The real news is that individual traders from every risk
profile
now have full access to the opportunities available in the forex
markets.
• Forex markets offer tighter bid to offer
spreads than currency futures
markets. By inverting the
futures price to compare it to cash, you can readily
see that
in the USD/CHF example above, inverting the futures dealing price of
.5894 -
.5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip
spread
available in the cash markets.
• Forex markets offer higher leverage and
lower margin rates than
those found in currency futures trading. When trading currency futures,
traders
have one margin rate for "day" trades and another for
"overnight"
positions.
These margin rates can vary depending on transaction size.
FOREX.com
currency trading gives the customer one rate all the time, day
and
night.
• Forex markets utilize easily understood
and universally used terms
and price quotes. Currency futures
quotes are inversions of the cash price.
For
example, if the cash price for USD/CHF is 1.7100/1.7105, the futures
equivalent
is .5894/ .5897; a methodology followed only in the confines of
futures
trading.
Currency
futures prices have the added complication of including a forward
forex
component that takes into account a time factor, interest rates and the
interest
differentials between various currencies. The forex markets require
no such
adjustments, mathematical manipulation or consideration for the
interest
rate component of futures contracts.
• Forex trades executed through FOREX.com
are commission free.
Currency
futures have the added baggage of trading commissions, exchange
fees and
clearing fees. These fees can add up quickly and seriously eat into a
trader's
profits.
In
contrast, currency futures are a small part of a much larger market; one that
has
undergone
historical changes over the last decade.
• Currency futures contracts (called IMM contracts or international
monetary
market
futures) were created at the Chicago Mercantile Exchange in 1972.
• These contracts were created for the market professionals, who at
that time,
accounted
for 99% of the volume generated in the currency markets.
• While some intrepid individuals did speculate in currency futures,
highly
trained
specialists dominated the pits.
• Rather than becoming a hub for global currency transactions,
currency futures
became
more of a sideshow (relative to the cash markets) for hedgers and
arbitragers
on the prowl for small, momentary anomalies between cash and
futures
currency prices.
• In what appears to be a permanent rather than cyclical change,
fewer and
fewer of
these arbitrage windows are opening these days. And, when they do,
they are
immediately slammed shut by a swarm of professional dealers.
These
changes have significantly reduced the number of currency futures
professionals,
closed the window further on forex vs. futures arbitrage opportunities
and so
far, have paved the way to more orderly markets. And while a more level
playing
field is poison to the P&L of a currency futures trader, it's been the
pathway
out of the maze for individuals trading in the
forex markets
foreign exchange market is the largest, most active market in the world.
Trading in
the forex markets takes place nearly round the clock with over $1 trillion
changing
hands every day. It is the main event.
The
benefits of forex over currency futures trading are considerable. The
dissimilarities
between the two instruments range from philosophical realities such as
the
history of each, their target audience, and their relevance in the modern forex
markets,
to more tangible issues such as transactions fees, margin requirements,
access to
liquidity, ease of use and the technical and educational support offered by
providers
of each service. These differences are outlined below:
• More Volume = Better Liquidity. Daily currency futures volume on the CME
is just 1%
of the volume seen every day in the forex markets. Incomparable
liquidity
is one of many advantages that forex markets hold over currency
futures.
Truth be told, this is old news. Any currency professional can tell you
that cash
has been king since the dawn of the modern currency markets in
the early
1970's. The real news is that individual traders from every risk
profile
now have full access to the opportunities available in the forex
markets.
• Forex markets offer tighter bid to offer
spreads than currency futures
markets. By inverting the
futures price to compare it to cash, you can readily
see that
in the USD/CHF example above, inverting the futures dealing price of
.5894 -
.5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip
spread
available in the cash markets.
• Forex markets offer higher leverage and
lower margin rates than
those found in currency futures trading. When trading currency futures,
traders
have one margin rate for "day" trades and another for
"overnight"
positions.
These margin rates can vary depending on transaction size.
FOREX.com
currency trading gives the customer one rate all the time, day
and
night.
• Forex markets utilize easily understood
and universally used terms
and price quotes. Currency futures
quotes are inversions of the cash price.
For
example, if the cash price for USD/CHF is 1.7100/1.7105, the futures
equivalent
is .5894/ .5897; a methodology followed only in the confines of
futures
trading.
Currency
futures prices have the added complication of including a forward
forex
component that takes into account a time factor, interest rates and the
interest
differentials between various currencies. The forex markets require
no such
adjustments, mathematical manipulation or consideration for the
interest
rate component of futures contracts.
• Forex trades executed through FOREX.com
are commission free.
Currency
futures have the added baggage of trading commissions, exchange
fees and
clearing fees. These fees can add up quickly and seriously eat into a
trader's
profits.
In
contrast, currency futures are a small part of a much larger market; one that
has
undergone
historical changes over the last decade.
• Currency futures contracts (called IMM contracts or international
monetary
market
futures) were created at the Chicago Mercantile Exchange in 1972.
• These contracts were created for the market professionals, who at
that time,
accounted
for 99% of the volume generated in the currency markets.
• While some intrepid individuals did speculate in currency futures,
highly
trained
specialists dominated the pits.
• Rather than becoming a hub for global currency transactions,
currency futures
became
more of a sideshow (relative to the cash markets) for hedgers and
arbitragers
on the prowl for small, momentary anomalies between cash and
futures
currency prices.
• In what appears to be a permanent rather than cyclical change,
fewer and
fewer of
these arbitrage windows are opening these days. And, when they do,
they are
immediately slammed shut by a swarm of professional dealers.
These
changes have significantly reduced the number of currency futures
professionals,
closed the window further on forex vs. futures arbitrage opportunities
and so
far, have paved the way to more orderly markets. And while a more level
playing
field is poison to the P&L of a currency futures trader, it's been the
pathway
out of the maze for individuals trading in the
forex markets
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» make money at home | forex trading - What is Forex Market?
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