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At $1.9 Trillion dollars per day, Forex is the most
traded
market in the world.
The sheer volume of
Forex helps to facilitates price stability in most
market conditions. What's more, almost 85% of all
currency transactions involve the 7 major currency
pairs.
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 inverting the
current 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.
It should be noted that increasing leverage
increases risk.
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.ca currency trading gives
the customer one rate all the time, day and night.
With more buying power,
you can increase your total return on investment
with less cash outlay. Of course, increasing
leverage increases risk. With $1,000 cash in a
margin account that allows 200:1 leverage (.5%), you
can trade up to $200,000 in notional value.
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 FOREX.ca are
commission free.
Forex.ca is compensated
through the bid/ask spread. Whereas 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. 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.
Forex.ca is compensated through
the bid/ask spread.
Changes in contrast
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%
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.
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