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Old 09-30-2010, 07:00 AM   #1

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Spot FX Vs CME FX Futures

I'm trying to decide whether to trade spot FX or trade CME Futures. I'd appreciate any comments on how accurate or otherwise the current info below I've picked up is:

Spot FX:
UK and Euro brokers are regulated, US brokers less so. Few US brokers have segregated client accounts, all UK and many Euro brokers do. Lots of instruments and cross pairs - we're told some are very liquid, but unless you have a true ECN account (or similar) showing volume, you can't you tell what liquidity your broker can provide. Some spot FX brokers widen the spread radically at news times, run their clients' stops, shut their servers off at FOMC time, and requote orders. All this can make short term trading difficult on e.g. 10-15 min charts and news trading impossible with those brokers.

CME FX Futures:
Less instruments available, and only the 'big six' CME pairs against USD (GBP EUR AUD CAD CHF JPY) have big liquidity - but I'm told each of these has more liquidity than any one spot FX broker/market maker can provide on the pair (true or false?). You can trade with direct access in the open market, not through a trading desk - so no requotes (instead, 'no fill' or slippage on market orders if liquidity is thin), and your broker alone can't run your stops. Limited Level 2 style volume info available, so you can see market liquidity, support and resistance within 5 price levels up and down. Very tight spreads which don't widen so much on news, so better for short term trading. It can be cheaper pro rata to trade full contract size futures than full lots of spot FX (I don't know about Minis). Brokers make their money on futures mostly from fixed commissions, so they have less incentive to play games against you. Cross pairs have much less liquidity, as do Mini contracts.

This leads me to prefer the Futures - is this a fair view?

Specifically:

a) Do any of you day and swing trade Mini FX futures successfully? If so, which please?

b) Does anyone here successfully day and swing trade CME Futures cross pairs, e.g. EURJPY or GBPJPY?

c) Do any of you do fast low volume news announcements trades on CME FX futures, if so, on which pairs have you had success please?

Thanks, Max

Last edited by maxr; 09-30-2010 at 07:14 AM.
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Old 09-30-2010, 12:23 PM   #2



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Re: Spot FX Vs CME FX Futures

First, well done with your comparison. I think you did a really nice job of laying out the differences.

I would agree with your spot FX comparisons, though I think you can feel very secure with US regulated accounts from the main US brokers. There really has never been a problem with those -- it's always been the brokers who were not licensed in the past that had issues. The US does have some additional restrictive rules on the type of trades you can place so that is another difference -security of funds I feel will be similar. Totally agree though on the liquidity and executions. Repricing happens at all these brokers and it can be a problem in fast moving markets - some are much worse than others.

Agree on your CME FX assessment so I'll answer your questions.

a) Do any of you day and swing trade Mini FX futures successfully? If so, which please?

I only trade the full size and so far that has been the BP and EC. I plan on adding the USDJPY to the mix since volume looks good, but so far in all cases feel there seems to be best volumes on the full sized and not the minis but maybe someone else can step in and defend using the Mini FX futures.

b) Does anyone here successfully day and swing trade CME Futures cross pairs, e.g. EURJPY or GBPJPY?

The ones I trade are mentioned above but have been keeping an eye at expanding this since the volumes really do continue to seem to grow so I could very much see trading the EURJPY futures.


c) Do any of you do fast low volume news announcements trades on CME FX futures, if so, on which pairs have you had success please?

So far I have focused on trading during the European market hours - I get better results than the US market hours -- US seems more unpredictable and the European seems steadier with the moves -- less whipsaw. Perhaps my favorite block of time is 2am EST - 5am EST.

MMS
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Old 09-30-2010, 07:48 PM   #3

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Re: Spot FX Vs CME FX Futures

My 2 cents....

Depends on your style really. Forex is an inter bank market which basically means you've got no depth of market so you can not base any of your trading on what is actually trading, which is what being a trader is about. The prices that are quoted by your FX broker is different from what the banks are quote them, which is where they make their money, hence very tight spreads and no commissions. Basically it's risk free money for them.

If you trade the currency futures, you've got all the information you need to trade consistently day in day out. You've got full depth of market on the book and are available to see everything that is trading at each price, which allows you read supply and demand around s/r levels as well as reading when price is being malnipulated, which inturn gives you more sustainable trading.

Forex = Playing poker when you have no idea how many people are sat at the table, no idea who's calling, who's folding, betting or raising, and no idea who's bluffing.

Futures = Playing normal poker with a load of people who don't know how to play...

Different strokes for different folks, but i know what i prefer...
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Old 10-01-2010, 09:59 AM   #4

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Re: Spot FX Vs CME FX Futures

Thanks Guys:

MadMarketScientist: what timeframes do you use with the early European sessions? I know a guy who trades the European open from 01:30 EST /06:30 GMT on short 3 minute and 86 Tick charts - he's trading the opening moves with a 'seat of the pants' technique on bare charts (which he's very good at). I'm wary of getting caught with the wrong timescale charts and big opening moves that sometimes correct - 60 points up and 60 back down in 40 minutes shows as a doji on a 60 minute chart...

86834 - with a tradestation account I get 5 levels of Bid volume and 5 levels of Ask volume on CME FX futures. Is that as much as is available for CME FX Futures, or just what tradestation choose to display?

Thanks, Max
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Old 10-02-2010, 05:21 PM   #5

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Is depth of market really an edge? I found it distracted. I only care about the spread.



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Old 10-03-2010, 08:43 AM   #6

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Re: Spot FX Vs CME FX Futures

Quote:
Originally Posted by cw30000 »
Is depth of market really an edge? I found it distracted. I only care about the spread.
.

Depth of market is yet another thing to watch, but as a relative beginner, the way I see it is that it gives me some comfort to know that e.g. someone has suddenly offered out another 50 contracts 3 pips up from where I was thinking of buying in - do I want to buy into that resistance, or wait to see if it's pulled off or bought up piece by piece before entering? OK, they might just be faking, but at least I can see it. 5 levels of market depth each way isn't much compared to e.g. NASDAQ Level 2, but it's something. Say you want to get in quick and buy 4 contracts at market but there's only 1 currently offered on the inside and 6 one pip up - are you likely to get more slippage than if there's 15 available at the inside bid and 67 one pip up? Spread is important, but I feel that in the end it's the prices you enter and exit at that really matter, and for me, market depth gives some insight on that at the although it probably is a distraction. Am I making too much of it?

I guess my gut feeling about normal spot FX brokerage accounts is that it's like playing cards with a banker who can see all the hands - it might suit him to play with you or against you :-)
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Old 10-03-2010, 10:44 AM   #7

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Re: Spot FX Vs CME FX Futures

maxr,

Your analysis of the differences very well done. I trade currency futures exclusively because I only trade the majors with full lots. I have traded both spot and futures and find the primary difference is whether you need the size in the crosses and whether the 1700 -1759 (Eastern) downtime is an issue for you.

As to the size in the book, many misinterpret what the size off the inside market is. Those are normally hedgers (even FX brokers hedging in the futures market) and really does't mean much.

I have worked for several hedge fund/prop trading firms and contrary to popular opinion, we can easily hide the sizee of our orders by either shredding the order (breaking it into very small orders, often 1 lots) or by working the order (entering in a band of prices rather than a specific price).

I have a term I use "unit of the gods" referring to what size move catching the attention of an algorithm. For the large players in the 6E (EC to tradestation folks), that number is somewhere around 20 ticks and for huge macro players it is 50+ ticks.

That means the rest of the price movement is simply noise to them and if you are good, you can move in and out of those bands kind of like a speedboat moving among oceangoing ships. You can turn a lot more quickly then them but you have to watch out for the wake.

All in all, if you can trade a full lot on the CME, that is the place for the smaller player in my opinion.

I hope this helps.
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Old 10-03-2010, 02:29 PM   #8
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I thought I would quickly add my two cents since I started day trading in Forex...

As far as needing to see depth, it all depends on ones strategy. Personally, my strategy has no need for depth and/or volume. I just need to know where price is now and where it has been. So this may or may not be an issue.

There is the option of going through a broker that does give you quotes without games and just charges you a commission (e.g. MBTrading).

There are some great advantages to Forex such as precise money management for those with smaller accounts.

It just comes down to what you need and want. But don't believe any blanket statement and always do your own due diligence.
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