I use backtesting software to test various strategies I develop as well as learning the ins and outs of automated trading in the currency market. 2 Questions if anyone can assist me: 1. I have been using currency futures data and also spot forex data to backtest strategies. Since spreads can be all over the place in both, how do you best incorporate the spread dilemma into meaningful backtests? (I would like to trade 1 minute bars). 2. As a small player relative to trade lot size (less than 10 contracts), does anyone have an opinion on best instrument to trade in the currency markets? I.E. FUTURES VS. SPOT FOREX? is one significantly more liquid that spreads are considerably tighter? Thanks for your comments.
More liquidity in spot doesn't mean you will have less costs entering/exiting ... A lot of forex brokers function like bucket shops where you cannot provide liquidity... You can always do it on currency futures so I would suggest to trade currency futures for limit orders and spot for market and stop orders If your strategies use market or stop orders( or limit on forex bucket shops ), just add the spread as slippage per round turn. If you're using limit orders, it's just really hard to get meaningful backtests...