Forex vs Currency Futures: which is cheaper for small traders?

I'm asking specifically about a small trader like me. Which would be cheaper and more effective for me? Let's consider a normal future broker and an ECN forex broker. Thanks.

 

in spite of what anybody on this board tells you, futures are cheaper, but most small traders, myself included, trade spot

my definition of small is anyone moving 5m or less at a time

it's more than just commission and spread, they are about the same, it has to do with carry and taxes

I would say most small traders prefer spot for other reasons in spite of the slightly higher cost, and the difference in cost is very minimal and only starts to matter as size increases

 

If you hold overnight positions often, futures are definitely cheaper. The future price already takes into account the difference between interest rates in the "short" and "long" currencies in teh pair. However, the margin that a broker will charge (on small position) on top the interest rate difference will accumulate to a very substantial sum over the course of a year.

On the downside, futures may be a bit too large for a "small" trader. Say, EUR/USD CME futures (5E) are worth $12.5 per pip and a 100 pip (1 point) move, which in the current environment is very common in teh timeframe of 24-hours, means $1,250 change in the position value. It depends on the capital and risk appetite if the trader can afford to scale up this size of risk.

The liquididty in smaller futures (mini and micro) is pretty much no-existent. These are only suitable if the aim is to hold a position for a few days to a few weeks where 10 pip bid/offer spread becomes immaterial but overnight broker margin accumulates.

Aslo note that ECNs often have minimum commission on currency transactions. So, if at €125,000 full-size CME future size commission (per dollar size) is comparable, smaller currency transactions may incur substantially higher percentage commission.

For intraday trading it really depends on the trading style, during most liquid periods fractional-pip bid offer in spot currency may be attractive. However, at the same time broker ECN markets are usually more shallow than the futures. Hance, they are vulnerable to "running stops" - pushing the exchange rate a little further past a support/resitance level in expectation thsi will trigger stops. This stop running (as seen on the deviation of the move between ECN and futures) may range from a couple of pips to 10-50 pips (during important news). Hence, with spot currency one should be more careful about placing stop orders with a broker (as opposed to executing a stop manually).

 

+1

 

I only do one trade a day, sometimes five.

The ECN spreads are between 0.1 and 2 pips. The commission is small. I can't understand how a future broker would ever be cheaper for any day trader, big or small.

Future broker = bigger slippage and much bigger comission (per contract!)

 

For day trading only EUR/USD futures have excellent liquidity and volume.

If day trading other pairs then you might be better off with the cash spot ECNs.

 

Or just use a market maker like Oanda with a 1-1.2 pip spread on the EUR/USD... No commissions.

 

compare paying an extra pip on 125k to paying $2.50 commission and get back to me

and don't forget the carry and the 60/40 split

 

There is always commissions. If you don't understand this then Oanda's got you bent over. Places that advertise no commissions are simply factoring that into the spread to attract newbies. I pay 2.50 each way for IB + the spreads but I know that it's much cheaper than Oanda will ever be. I trade 1-3 full lots.

 

the question wasn't who's cheaper, the mm or the ecn, it was what's cheaper, spot or futures?