Why trade FX versus futures exchange?

Discussion in 'Forex' started by andrasnm, Feb 1, 2004.

  1. fxtrader



    Here's a few thoughts for your research which is geared towards retail & institional clients:

    Why trade foreign exchange vs futures:

    1. FX: spot, fowards, swaps, options making up over 80% of all foreign exchange transaction vs. less than 20% futures.

    2. This market share represents depth of the market. Is it easier to move a $100 million currency transaction in the spot market or futures market? I can't say I've personally done it but I suspect I'd get a better fill in the cash market vs futures.

    3. FX pays interest, futures doesn't.

    4. Much more flexibility in terms of options strike in the FX market. Basically, you can state your strike in leu of incremental strike prices in the futures market.

    5. FX doesn't have a contract rollover/settlement date.

    As far as FX being a gamblers markets, I can't agree. The FX mkt behaves no different than any other mkt. Some days its quiet & some days I sit in awe at the sporadicness(Friday was a good example). But many days it trends beautifully right up to close of the session and these are the days when its a no-brainer to make a buck. I trade index equity, debt & FX and they all have their moments when you could say this is a gamblers market. Those are the times I walk away.

    Just as an aside, I've got a few friends who I might call gamblers in the markets. These guys always have a position on, never cut their losses, get out at the first 15% of a trend(cause they have to be right), trailing stops are not even in their vocabulary, listen to the "experts",and feel like the market owes them something. Their on an emotional rollacoaster but they've got these trust funds which keeps them coming back. Its the trader, not the market. Good luck with your book.
    #11     Feb 1, 2004
  2. just21


    fxtrader, what bank or brokerage do you use?
    #12     Feb 1, 2004
  3. That's wrong. Due to the fact that in spot market, funds have to be delivered during two business days, you must permanently roll over your open position. Every night! Fortunately your forex broker does it for you automatically... :)

    Quote from RefcoFX:
    In the spot forex market, trades must be settled in two business days. If a trader sells 100,000 euros on Tuesday, the trader must deliver 100,000 euros on Thursday, unless the position is rolled over. As a service to our traders, RefcoFX automatically rolls over all open positions to the next settlement date at 5 p.m. ET. Rollover involves exchanging the position being held for a position expiring the following settlement date. The positions being exchanged are usually not valued at the same price. The amount of the difference varies greatly based on the currency pair, the interest rate differential between the two currencies, and fluctuates day to day with the movement of prices. For instance, on any given day, the rollover can be $2 per lot for USD/JPY and $15 per lot for GBP/JPY.
    #13     Feb 1, 2004
  4. fxtrader



    I use CMS cause I like their charts, GAIN cause its one key stroke to get in & out(particularly when I'm in a hurry), & Refco cause my FX account also funds my futures account & they offer options.

    All 3 are better then most as far as "requotes" go.

    Commerce Bank is good but its alittle too expensive for me as far as the spread goes. Have heard from other traders that UBS is starting to cater to the retail market but I haven't spoken to them yet.
    #14     Feb 1, 2004
  5. fxtrader



    Your right, what I mean is I never have to think about what contract month offers the most open interest/liquidity.
    #15     Feb 1, 2004
  6. This is pathetically easy. It changes once every three months.

    I have traded both extensively. If sticking only to the Euro, I prefer futures with the 1 tic spread vs 3 pips for most forex platforms. Even with the commission, its costs maybe half as much with futures.

    #16     Feb 1, 2004
  7. Cutten


    The futures liquidity is poor (except in the Euro). The selection of currencies is tiny. You can't do cross rates. The back months don't trade, so you can't do forwards (which prevents you from making interest-rate plays). The contract size is fixed (a problem for smaller accounts).
    #17     Feb 4, 2004
  8. i can see these same arguments being made in 1915 defending bucket shops. the markets really are a never ending cycle.

    #18     Feb 4, 2004