The global foreign exchange market is the
largest, most active market in the world. Trading
in the FOREX markets takes place nearly around the
clock with more than $1 trillion changing hands every
day. It is the main event.
The benefits of FOREX over currency futures trading
are considerable. The dissimilarities between the
two instruments range from philosophical realities
such as the history of each, their target audience,
and their relevance in the modern FOREX markets, to
more tangible issues such as transactions fees, margin
requirements, access to liquidity, ease of use and
the technical and educational support offered by providers
of each service. These differences are outlined below:
• More Volume = Better Liquidity. Daily currency
futures volume on the CME is just 1 percent of the
volume seen every day in the FOREX markets. Incomparable
liquidity is one of many advantages that FOREX markets
hold over currency futures. Truth be told, this is
old news. Any currency professional can tell you
that cash has been king since the dawn of the modern currency
markets in the early 1970's. The real news is that
individual traders from every risk profile now have
full access to the opportunities available in the
FOREX markets.
• FOREX markets offer tighter bid to offer spreads
than currency futures markets. By inverting the futures
price to compare it to cash, you can readily see that
in the USD/CHF example above, inverting the futures
dealing price of .5894 - .5897 results in a cash price
of 1.6958 - 1.6966, 8 pips vs. the 5-pip spread available
in the cash markets. FOREX markets offer higher leverage
and lower margin rates than those found in currency
futures trading. When trading currency futures, traders
have one margin rate for "day" trades and
another for "overnight" positions. These
margin rates can vary depending on transaction size.
Forex.com currency trading gives the customer one
rate all the time, day and night.
• FOREX markets utilize easily understood and
universally used terms and price quotes. Currency
futures quotes are inversions of the cash price. For
example, if the cash price for USD/CHF is 1.7100/1.7105,
the futures equivalent is .5894/ .5897, a methodology
followed only in the confines of futures trading.
• Currency futures prices have the added complication
of including a forward FOREX component that takes
into account a time factor, interest rates and the
interest
differentials between various currencies. The FOREX
markets require no such
adjustments, mathematical manipulation or consideration
for the interest rate component
of futures contracts.
• FOREX trades executed through Premierefx.com by its brokers which are commission free. The FCM and RB are compensated for their services through the spread between the bid/ask prices. Currency futures have the added baggage of trading commissions, exchange fees and clearing fees. These fees can add up quickly and seriously eat into a trader's profits, if any.
In contrast, currency futures are a small
part of a much larger market, one that has undergone
historical changes over the last decade.
• Currency futures contracts (called IMM contracts
or international monetary market futures) were created
at the Chicago Mercantile Exchange in 1972.
• These contracts were created for the market
professionals, who at that time, accounted for 99
percent of the volume generated in the currency markets.
• While some intrepid individuals did speculate
in currency futures, highly trained specialists dominated
the pits.
• Rather than becoming a hub for global currency
transactions, currency futures became more of a sideshow
(relative to the cash markets) for hedgers and arbitragers
on the prowl for small, momentary anomalies between
cash and futures currency prices.
• In what appears to be a permanent rather than
cyclical change, fewer and fewer of these arbitrage
windows are opening these days. And, when they do,
they are immediately slammed shut by a swarm of professional
dealers.
These changes have significantly reduced
the number of currency futures professionals, closed
the
window further on FOREX vs. futures arbitrage opportunities
and so far, have paved the way to more orderly markets.
And while a more level playing field is poison to
the P&L of a currency futures trader, it's been
the pathway out of the maze for individuals trading
in the FOREX markets.
Past
performance is not necessarily indicative of future
results and individual returns may vary amongst participants.
Investment return and principal value will fluctuate
so that an investor’s shares, when redeemed,
may be worth more or less than their original cost.
All performance figures assume the reinvestment of
realized gains and capital gains. There is considerable
exposure to risk in any foreign exchange transaction,
including, but not limited to, the potential for changing
political and/or economic conditions that may substantially
affect the price or liquidity of a currency. This
is not a solicitation to invest. Please consult your
investment advisor and read all risk warnings before
committing funds.
Premierefx™ is a trademark
of Premierefx™, LLC and any related products, are
analytical tools only and are not intended to replace
individual research or licensed investment advice. Unique
experiences and past performances do not guarantee future
results! Testimonials are non-representative of all clients;
certain accounts may have worse performance than that
indicated. Trading stocks, options and spot currencies
involves substantial risk and there is always the potential
for loss. Your trading results may vary. No representation
is being made that any software or training will guarantee
profits or not result in losses from trading. Neither
the software programs, any explanation or demonstration
of their operation, nor any training held in conjunction
therewith, including, without limitation, through online
chat, radio programs, during in-person seminars or otherwise,
should be construed as providing a trade recommendation
or the giving of investment advice. All purchasers of
software or other products owned by Premierefx™,
LLC are encouraged to consult with a licensed representative
of their choice regarding any particular investment or
investment strategy. Prices and offers are subject to
change without notice. All shipping & handling charges
are non-refundable.
Trading foreign exchange on margin
carries a high level of risk, and may not be suitable for
all investors. Before deciding to trade foreign exchange
you should carefully consider your investment objectives,
level of experience, and risk appetite. The possibility
exists that you could sustain a loss of some or all of
your investment and therefore you should not invest money
that you cannot afford to lose. You should be aware of
all the risks associated with foreign exchange trading,
and seek advice from an independent financial advisor if
you have any doubts.
