Discussion in 'Forex' started by Transact Futures, Dec 31, 2003.
Is it that much better to trade Forex vs. THe CME currency products?
I think the question should be phrased: Is it that much better to trade THe CME currency products vs.Forex ?
In which case until now the answer is yes.
The reason is the spread; 4 to 5 pips that the forex brokers siphon.
However these are coming down and if it gets to a 2 pip spread then forex may win out over currency futures.
What is a pip worth?
I believe a pip is worth 10 US dollars per 100K US dollar lot.
So if your trading at a forex firm and have a 4 pip spread between the bid and ask you will incur a cost of $80 us dollars for every round turn trade per 100K lot. The commission on a similar size futures contract is typically $5 per round turn and of course is some instances you can make the spread work in your favor.
There is no every round turn in spot forex. It's a one time
spread of 2-4 pip that you pay. Many spot forex brokers
now offer 2 pip spread only, so it's not much differnet
than trading futures. Spot forex is 24 hours a day,
but futures isn't
A pip is the smallest possible move in any fxrate. For example EUR/USD: 1 pip = 0.0001; USD/JPY 1 pip = 0.01. Its value depends on the specific crossrate.
By the way: CME-Futures advantage depends on its liquidity. I agree with "EUROFX-Future is better than FX EUR/USD", but I prefer FX GBP/CHF against a combination of CHFUSD-Future and GBPUSD-Future.
Not sure what I was thinking, the other guys brought up some good points. That $10 pip value would depend on the currency pair. I think it's typically $7 - $11 per lot. I belive it's $10 for the US/EUR.
As for "round turn" I meant the cost of paying the spread once for the entry trade and again for the exit trade. Also I wasn't trying to convince you that futures are better just pointing out the higher costs of forex. I haven't noticed 2 pip spreads but if that's true then forex has definitely gained some ground on futures.
You only pay the spread once. If you bought at the ask, then the only number you care about later is the bid. If the quote moves up 2 pips, then you are even.
Some thoughts on Forex vs. CME.
For the last two weeks I have been comparing the price data of the Oanda forex prices with EURUSD prices now offered on Tradestation with TS 7.2 while watching the price movements for the EC forex contract.
It is not unusual for the price of the TS EURUSD to be more than 2 to 4 pips of the OANDA price quote. Being used to trading futures 'contracts' where there is a single 'last' price, the forex price action is very different. Without seeing the real interbank bid/ask prices it is difficult to say which price feed is giving the best prices at any one time. I am sure forex brokers are providing the 'best price for them' .
Futures trading software is better in my opinion. TradeStation with its new Matrix window is excellent as well as IB with AutoTrader (free and simple) or ButtonTrader (full featured and costly). There is no trailing stop support in any forex client that I know of that compares with what is available in futures clients (does anyone know a forex client with trailing stop support?).
In short, I would rather pay a flat comission and receive an exchange based 'last' price than trust an unregulated forex broker to give me a 2 or 3 pip spread on top of their 'best price determined by them'.
Sign up for several forex demo accounts for yourself and compare the price action from several brokers side by side with the same activity in the futures market. It is easily worth the time and effort....
The demo accounts of the forex dealers are set to make their fills look good. In practice with a real account you will sometimes find the price staying still as soon as you place an order but you mysteriously being asked whether you want to accept the new price. There must be raking in the money with these tactics, like the british spread betting shops.
The only forex dealer that doesn't do this that I have tried is Commerce Bank Foreign Exchange, www.cbfx.com . they are down to a genunine 3 point spread as well.
As I said if they can get it down to 2 pips/ticks then they may match the futures. But until then I trade futures only.
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