Spot vs Futures

[TinGull 10]

Hi there,

 

I'm completely new to forex, and have been trying to figure out what is better to trade....the cash or the futures? While the cash market is unregulated, the futures are protected by an exchange, which is really nice, and the price you get from some so called non dealing desk brokers and dealing desk brokers isn't really the "price" that the big banks are getting, but futures contracts are just that....whether 1 or 100k contracts, it's the same price.

 

Is there a big difference in trading the futures for currency rather than the cash forex?

 

Thanks!!

 

Chris

[Anna-Maria 10]

I wouldn't say there's a big difference really, particularly not for the average retail based trader looking to execute on smaller than avg size.

 

There are pro's & cons with both alternatives.

 

The spot market is a seamless 24hr vehicle. Although much of the liquidity on the majors subsides as London closes, it still remains pretty accessible. Liquidity on the Futures however, dries up noticeably 'out of hours' & slippage can sometimes be experienced.

 

If an important item of news hits the market whilst the Futures market is quiet, the next session open can be a wild ride - this is where slippage & gap executions can be skewed.

 

Folks bang on about the Spot market being much more heavily traded than the Futures, & lower commission structures etc....but in reality, unless you're obtaining STP/ECN facilities via your spot provider, you're paying your dues thru the spreads & only subject to the liquidity available within your brokers limitations anyway.... + you're not really trading the "actual market" rather the brokers desk prices!

 

So, there are advantages & disadvantages to both methods of execution.

 

If you're content in only trading during "normal market hours" & your execution bias is geared to intraday positioning via say the Euro, then Futures is a fair option.

 

You get total transparency, you're dealing thru a fair medium with up front costs & good liquidity.

 

Your only downside is occasional slippage, gaps & maybe the odd case of negative price availability, based on 'time of day' transaction!

 

ps: Forgot to include, that I think you'll find the added attraction of most folks to the spot environment are the flag waving hard sell lures of increased leverage/low $ access....you'll see some brokers offering access into the markets from as low as $500 with 200:1 leverage?

 

A very dangerous weapon in the wrong hands!! :rolleyes:

 

But sales ploy's such as that + the constant barrage of "massive liquidity" blah blah draws in the unsuspecting in droves!

 

Like anything else in life: There are no free lunches - read the small print & keep your wits about you

[torero 10]

I think one thing traders have to keep in mind is that in both markets, we trade on margin but more on forex than on futures (100:1 vs. 10:1). So when holding overnight in forex, the interest can get quite steep.

 

Trading futures, there is no interest for holding, however long you want. So there is a disadvantage in forex if you leverage and borrowing high amount with holding the position a good while, your gains diminishes. In essence, if the market doesn't move, your account is diminishing due to interest fees. This is similar in options with time decay. Hope I made that clear.

[Gav 10]

I think texxas and torero explained the points. Just to add on. I withdrawn from spot forex and focus on futures was really due to regulation. Spot forex, you are dealing with your broker, not really the market. You are playing with their rules, their server availability, trust them with your money.

 

Nothing really good or bad. If you are able to take the game, go ahead. For me, NO.

 

Happy holiday