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Chapter 2, Part III. There is quite different story with the futures market... Page 6

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    MYTH #10 The counterparty of all trades in the futures market is the exchange itself


    Exchange is a counterparty of all trades on futures market. It’s a guarantor of fulfillment of all obligations at every trade. It means that the exchange finds the counterparty that want to sell and buy from them – simultaneously it finds the party, who wants to buy and sell to them. This is made electronically and simultaneously, so that exchange does not have one-side positions. But this is a great advantage to traders, because the counterparty of all trades on the exchange is the exchange itself. And this fact guarantees fulfillment of obligations on your trade. Furthermore, if you take into consideration the fact that both – the seller and the buyer have initial margins for their trade, you should understand that trade on exchange is many times safer than on the spot FOREX market.​

    MYTH #11 The Futures market has greater fees than FOREX, so to trade futures is more expensive


    Because, brokerage fees on the futures market much less than on the stock market. Let’s see – the Bid/Ask spread on CME EUR/USD futures just 1 point or 0.0001. As the value of 1 contract is $125,000, the spread value is $12.50 (=0.0001*125,000). I can say that broker fees for 1 trade that come to about $10 per contract is treated as high. The average fees on futures market $5 per contract. It means that buying and selling 1 contract (accomplish a full trade) will cost you $10 plus a 2 point spread (1 point during buy operation and 1 point during sell) that is $25 - all together $35. This is your total expenses on futures market. Ok, we can even assume the maximum expenses and take $10 per contract. In this case it will be $45.

    Now let’s see what we have on FOREX. No fees, right. But spread is typically at least 2.5 points for 1 side of trade. It leads to 5 point on full trade or $50 for full lot on EUR/USD ($100,000). It’s even greater than max fees on futures market! Interesting, right?

    But to be absolutely fair, I have to say that brokerage fees do not depend on the size of contract. If you trade micro contract that is 0.1 of normal one – the fee remains the same – $5 per contract. It means that futures market trading costs become less expensive when you trade big volumes, but a bit more expensive when you trade small volumes.​
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 6, 2016
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