Forex Vs Currency Futures - System Question

[sicktrader 10]

I have been trading currency futures profitably for some time, and now want to move to the Forex, at least I think. Got a demo the other day, but haven't set it up yet. My question is that if I have a system that works with currency futures, will it likely work the same with Forex? Has anyone experienced this situation? Thank for the help.

[DugDug 10]

theoretically if your system is robust enough it should work on almost any instrument.

So long as you understand and are aware the difference between the futures and spot- hence the premium - you should be fine.

Why not just get some spot data, walk your system forward and see that it picking up the same trades you have been doing in the futures.

[brownsfan019 17]

Why would you want to move to forex if your futures trading is making money? Is there not enough leverage?

[Cory2679 11]

You should read this...

why you should trade cme currency futures instead of cash fx.doc

[Kiwi 16]

Thats now a 3 year old document Cory.

 

If you use something like Interactive Brokers ECN Forex most of the arguments are void and forex can work better for you than futures especially outside of US RTH.

[thalestrader 14]

I have been trading currency futures profitably for some time, and now want to move to the Forex,

 

I thought you were doubling your bankroll on the ES every few days or so. At least that is what you were claiming over at ET awhile back. Why would you ever consider going to a bucket shop if that were the case?

 

Best Wishes,

 

Thales

[sicktrader 10]

I thought you were doubling your bankroll on the ES every few days or so. At least that is what you were claiming over at ET awhile back. Why would you ever consider going to a bucket shop if that were the case?

 

Best Wishes,

 

Thales

 

 

That was some time ago, and it wasn't every few days but a few weeks on average. But then the few weeks turned to a month because there were less and less set ups, so I went to the currencies. Looking to better my win rate by about 5%, and from what I hear the forex is a smoother market, so hoping a simple switchover may accomplish the extra one win out of 20 trades. In addition, even if the switch doesn't move the win rate, I would expect more set-ups with currencies that aren't available to me now, which would do the trick as well.

[garak 10]

pros

- about 95% of volume is spot traded, why not trade the primary market?

- there are only few futures with good liquidity and tight spreads around the clock, mainly the majors

- no roll-over when trading spot

- some brokers offer WYSIWYG meaning no slippage up to certain position limits

- some brokers offer variable position sizes, micro/mini lots etc.

- free charting

 

cons

- you have to find a decent FX Broker, because in most cases he is also a market maker meaning loose regulation or try a ECN that pools liquidity from various providers

 

Bottom line: If you can find a good Broker/ECN there is no need to trade FX futures. Why? See above

[Eric Johnson 10]

I agree with Garak, I would never go back to futures currencies. I think you will be at a great advantage for so many reasons. One of them being that you can use market orders and not get crushed on slippage.

As for charting and systems, you should have no problems. With the volume and tight spreads you can expand to real scalping if you like. It amazes me that we do not see more people running to forex. I have traded so many things, and forex is by far the best for 24 hour access, consistency of price flow (especially EUR/USD), and yes free quotes and platforms. Anyhow hope this encourages you as you push through the conversion process.

[bootstrap 47]

i have and will always be a currency trader. after all it is what makes the world go round.

 

futures have their place and i still trade them, but my game is now the spot. and was my game before my recent break from trading.

 

with the ability to vary leverage at the click of a mouse, it is hard to beat.

 

as for your strategy, i whole heartedly agree with DugDug. if your strategy really works, it would work even on those money robbing mutual funds.

[BlowFish 10]

It does seem that there are a one or two real (Direct Market Acess) brokers coming online. I have experience of MBT and IB. Does anyone have experience of others?

 

My biggest problem is lack of volume information, bid/ask ticks might be OK for some approaches but not for the statistical measures I am currently using. Guess its fine if you trade pure price.

[daedalus 10]

I'm really amazed at the praise i'm hearing for spot. I've traded fixed and variable spread spot brokers including Gain, MBT, FXDD, and some others and switching over to the futures market was the best thing i've ever done.

 

pros

- about 95% of volume is spot traded, why not trade the primary market?

- there are only few futures with good liquidity and tight spreads around the clock, mainly the majors

- no roll-over when trading spot

- some brokers offer WYSIWYG meaning no slippage up to certain position limits

- some brokers offer variable position sizes, micro/mini lots etc.

- free charting

 

• - This stat is thrown around a lot but its not like your in one big liquidity pool in the spot market, most shops you are taking positions against them and not actually hitting the market, and not interacting with the actual liquidity pool per se... so whats the point? I forgot where I read it but there is some stat thrown around as well that of that 95%, like 65% of that volume is institutional and isn't accessed by the retail side to begin with. Hopefully i'm not talking completely out of my ass.
  
• - By the same token there are only a few spot markets that have good enough liquidty to trade actively.
  
• - I know MBT kicked me off for rollover everyday....
  
• - Thats great, but then by that measure the futures market does this automatically.
  
• - I do concede that variable position sizing and micro lots have futures markets beat fair and square. But IMO, if you can't cough up 2k to trade the 6B contract live maybe you should stay on sim mode a bit longer.
  
• - OEC has free charting as well with easylanguage and C# support, other brokers like AMP offer Ninja to their clients at no additional charge.
  

 

Now if you're trading swing on daily, 4 hour charts, etc where a couple pips slippage isn't the biggest deal go for spot. But if you are an active trader and want guaranteed 1 pip spreads on every market then I don't get how anyone can say that spot is a realistic alternative because it just isn't.

 

Take a real time quote from a fixed spread broker thats known for being pretty tight on their spreads, Oanda... RIght now the GBPUSD is at a 2.5 pip spread. I get a 1 pip spread on my futures account. So i'f i'm trading for say an taking a long at 14808 using a buy stop to enter the market... in the 6B and I get in and to my 11 pip target I make 11 pips, minus 5.45 for my commission.

 

If I take the same position in spot first off i'm going to have to put a limit order in after price makes a move up and maybe or maybe not get filled as you can't use buy/sell stops to enter. Then if i'm doing the next best thing which is entering after that initial move up is entering at the market and taking taking the spread against me and my 11 pips turns into 8.5 assuming the same move.

 

Assuming the same position sizing the futures account is up $63.30 and the spot account is up $53.12

 

And i'm sorry, I get that 1 pip spread no matter the time of day in the futures market, and don't even tell me that spreads don't widen on spot... I know on MBT all the spreads go wide after the London close and trading at night even around the Asian open the spreads were significantly larger than during US market hours.

 

As far as people saying there isn't enough liquidity? Really? I know of guys who are clearing 300 lot orders in the 6E without any issues. I doubt any of us are or ever will be pushing 10% of that size. Yes I do get slipped a tick on occasion. I had 8 trades this week so far and I have been slipped a total of 1 tick thus far. The most I was ever slipped was 2 ticks and that was due to trading right ahead of a EIA Petro report in the GCL.

 

I've done the math personally and I don't see ANY advantage to trading spot other than variable lot sizing.

[BlowFish 10]

I'm really amazed at the praise i'm hearing for spot.

 

Me too! :):)

....

[VSAtrader 10]

In my opinion currency futures is better than spot forex. I traded several years spot and eminis. After I start trading currecy futures it is very successful for me. I think newbies better start with currecy futures better than ES.

 

Happy trading

[Kiwi 16]

Actually daedelus,

 

All the good stuff you describe with futures is also available with Interactive Brokers forex. They are not ultra high leverage and they don't do microlots, just minis but the spread on EU is half a pip (half, not one) during european/us market hours. On the others it is as good or better than futures. And there is no more pulling of orders for news with the forex than there is for c futures. Plenty of size too.

[garak 10]

This stat is thrown around a lot but its not like your in one big liquidity pool in the spot market, most shops you are taking positions against them and not actually hitting the market, and not interacting with the actual liquidity pool per se... so whats the point?

 

I mentioned the broker issue already. Besides FX futures are depending on the spot market. It makes the pace. Therefore I like to trade the primary market whether it is only 35% of that 95% or not.

 

As far as people saying there isn't enough liquidity? Really? I know of guys who are clearing 300 lot orders in the 6E without any issues.

Try this with the futures for EUR/GBP, EUR/JPY, Swissy...

[BlowFish 10]

I mentioned the broker issue already. Besides FX futures are depending on the spot market. It makes the pace. Therefore I like to trade the primary market whether it is only 35% of that 95% or not.

 

 

I'd be interested to hear who you and the other guys trading Spot use as a broker?

 

Heres the thing. There are two completely different ways of 'trading' spot.

 

1) Through an actual broker. In this case the advantages listed in this thread apply. As far as I can tell real brokers are very few and far between for retail customers. Slowly the situation seems to be changing.

 

2) Through a bookie (market maker as they like to call themselves). In this case none of the advantages in this thread apply (except flexibility in position sizing). Most of the big name 'brokers' that people refer to are actually bookies.

 

Heres another thing. Even the handful of real brokers will often deal with small orders (minis or micros) differently. In this case they usually 'make a market' themselves.

 

My suspicion is a lot of people are using number 2) whilst enthusing about the advantages of number 1). One is not trading the primary market if 'trading' with a bookie, you are taking a bet on the future market price. As the market is not centralised the guy you are taking the bet with tells you what the price is (this can be manipulated in the short term). This is a pretty clear disadvantage .

[Kiwi 16]

Yes, the argument that "FX futures are depending on the spot market" is rubbish really.

 

Sometimes futures follows spot, sometimes the reverse. And pushing futures can be an interesting way of dragging a spot position to a place you need it to be (short term).

 

Here's the thing:

- does the market behave in ways that suit your trading style?

- can you get competitive ba spreads?

- can you get order rules that are open and honest?

- any manipulation that will hurt you?

- any trickery around news that will hurt you?

 

So I could trade futures or forex with ib (because the forex is ecn based) but I like the scalability of forex, the half pip spreads, same costs etc etc. The interesting thing is that we now have mini-futures in response to mini and micro forex but I'm guessing the futures boys were too arrogant for too long and have lost that chunk of the market to forex.

 

Because I trade in Asian and European hours I am well aware of the nasty slips I used to get on futures - but don't get to the same extent with ib forex. Also, the news reaction is the natural one (a short pulling of orders by most players to avoid being disadvantaged) not manipulated (like Oanda holding the news state for several minutes after the news is out (not so much manipulation as self-protection and being a bit lazy about it imo).

 

But, as Blowfish points out, IB is a broker with a bunch of banks and the customer base forming the market (you can be the bid or ask), not a bookie/bucket shop.

 

 

Edit: according to the interactive brokers website: The tight spreads and substantial liquidity are a result of combining quotation streams from 11 of the world's largest foreign exchange dealers which constitute more than two-thirds1 of the market share in the global interbank market.

 

And the banks come from the group listed in: http://www.euromoney.com/Article/2194110/FX-poll-2009-Embattled-banks-boosted-by-performance-in-booming-FX-markets.html

Edited March 26, 2010 by Kiwi

[garak 10]

Yes, the argument that "FX futures are depending on the spot market" is rubbish really.

 

Sometimes futures follows spot, sometimes the reverse. And pushing futures can be an interesting way of dragging a spot position to a place you need it to be (short term)

 

Well you are familiar with triangular arbitrage between FX pairs I guess. EUR/USD, EUR/GBP, GBP/USD are heavlily traded on the spot market. Now there is a decent market for 6E, there is a weak market for 6B and there is no market for RP (yeah, thats the ticker for CME's EUR/GBP future). And you are trying to tell me FX futures can lead the spot market whereas there is no inherent price action within FX futures? Now that sounds rubbish I'd say

I really don't care what you trade or why but it seems to me you guys are a bit home-biased. But it's still London, Tokio, Zurich far in front of any futures exchange when it comes to FX.

[BlowFish 10]

If I might ask, who do you use as a broker Garak?

[Kiwi 16]

Tokyo is the city you're thinking of there

 

but it would be interesting to know who your broker is.

Edited March 26, 2010 by Kiwi

[garak 10]

If you think the futures market can't be used to manipulate cash then you need to spend a little more time at it perhaps.

 

I'd rather say If you think FX futures can be used to manipulate FX cash then feel free to prove it.

 

If I might ask, who do you use as a broker Garak?

I switched to financial futures some time ago. Had accounts with Dukascopy and Oanda.

[BlowFish 10]

Ahh Ok thanks so chalk and cheese. Dukascopy being a broker and Oanda (whilst having a decent reputation) being a bookie (so about as far removed from the primary market as you can get ).

 

How did you find Dukascopy? Seem to get favourable reviews though a few complaints about slippage on there 1 click trading. I think people dont realise that spreads do open up sometimes when things get volatile. At least with a broker you know it's down to infrastructure rather then manipulation

[daedalus 10]

Well you are familiar with triangular arbitrage between FX pairs I guess. EUR/USD, EUR/GBP, GBP/USD are heavlily traded on the spot market. Now there is a decent market for 6E, there is a weak market for 6B and there is no market for RP (yeah, thats the ticker for CME's EUR/GBP future). And you are trying to tell me FX futures can lead the spot market whereas there is no inherent price action within FX futures? Now that sounds rubbish I'd say

I really don't care what you trade or why but it seems to me you guys are a bit home-biased. But it's still London, Tokio, Zurich far in front of any futures exchange when it comes to FX.

 

I'm not trying to personally bash anyone in here... but the 6B isn't weak by any means... in fact its the second biggest forex futures market and clears about 100k contracts a day.

 

Yes, the CME doesn't have exotic pairings that spot offers, but honestly, for the type of trading I do (targeting 10-15 pips most times) a 9 pip spread on the AUD/JPY or some whack pair isn't going to do me any good to begin with. I would argue that for most daytraders trading futures would be advantageous.

 

Swing trading I can see the advantages of having spot contracts not only for position sizing ease but if your shooting for 300 pips, the 9 pip spread isn't such a factor. I just don't think 90% of the traders out there trade like this and would actually be better served by the futures market IMO.

[sicktrader 10]

Yes, the CME doesn't have exotic pairings that spot offers, but honestly, for the type of trading I do (targeting 10-15 pips most times) a 9 pip spread on the AUD/JPY or some whack pair isn't going to do me any good to begin with. I would argue that for most daytraders trading futures would be advantageous.

 

 

Yep, that is all I go for anymore and futures have worked fine. I only open the forex demo once, then I realized why the hell should I switch if it is working. Anyway, I am off to Florida with the family later today, need to unwind from the IRS continually shoving it up my ass. Have fun while I'm gone.