Liquidity in FX vs Currency Futures

inops

Recruit
Came across this info written by Joe Ross. Perhaps some have already seen the article. Am certain that the 'free-wheeling' Oz Wizard will be entertained by such info. Do the experienced traders on the forum agree with the conclusion?

Forex vs. Futures

Lately in our forum there have been quite a few posts concerning forex trading. I think it is time to set the record straight on at least one of the claims made by forex brokers.
I believe it is generally agreed that FXCM is the largest retail forex broker in the world. At least, that is what they claim. If this is true, it means all other forex brokers have less volume than does FXCM.
It is generally claimed by forex brokers that the forex market is the most liquid market in the world, and I have no doubt this is true. Around 2 trillion dollars are traded in forex during a 24-hour period.
The question is, how much of that 2 trillion dollars is available via retail forex? The answer is precious little, as you will soon see.
It is a statistical fact that around 90% of forex trading is traded against the U.S. dollar, and the most liquid retail forex trading is found in EUR/USD, i.e. the euro vs the U.S. dollar. What is not generally known is that the majority of the money traded in all of forex trading as well as in EUR/USD is traded directly between banks in what is known as the Interbank. This volume is not available to retail forex traders.
To prove that this is so, I decided to do a direct comparison of hourly volume traded at FXCM in EUR/USD vs the volume traded in the futures contract known as Euro fx traded at the Chicago Mercantile Exchange as Euro Globex.
Because it is said that Tuesdays are a good day to trade EUR/USD, I chose a Tuesday. You will have to take my word for it that the results are essentially the same for every other day of the week. I chose Tuesday, December 4, 2007. There were no holidays in the U.S. on that day, nor were there any anywhere else in the world as far as I could determine. Here are the 60-minute volume results taken every two hours, supported by the charts you see below:

CONTRACT VOLUME
December 4, 2007
TIME FXCM FUTURES
12 AM 368 928
2 AM 1355 7850
4 AM 1025 2937
6 AM 848 5924
8AM 1104 4818
10 AM 782 2436
12 PM 318 1776
2 PM 258 1208
4 PM 415 CLOSED
6 PM 496 1575
8 PM 370 972
10 PM 395 952

I also looked for a day when there was a great deal of price movement. October 22, 2007 was such a day. Total volume at FXCM was 18,019 contracts. Total volume in Euro Globex was 168,216 contracts, more than 9 times the volume at FXCM.
Now you know! What about the other brokers who are not as big as FXCM? Not counting sponsored links using Google search, there are 296,000 listings for forex brokers. I know that many of those listings are duplicates and triplicates, but they are having to share whatever contract volume there is, which presumably gives each one less than the volume at FXCM. Looking further at brokers who have had traders give them a review, you will find that there are over 200 brokers large enough to have had someone rate them. In light of this information, how can anyone believe that there is more liquidity in retail forex than there is in trading currency futures?
Questions or Comments? Please email us: support@tradingeducators.com

© 2007 by Trading Educators, Inc
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Sorry, do not understand why i could not paste the chart in the article.

Anyway, am enjoying the forum, and the help from the experienced traders.

inops.
 

OzWizard

Corporal Punishment
Thanks for the COMPLIMENT......

Came across this info .... certain that the 'free-wheeling' Oz Wizard will be entertained .... Do the experienced traders on the forum agree with the conclusion?

Forex vs. Futures

Lately in our forum there have been quite a few posts concerning forex trading. ..........Anyway, am enjoying the forum, and the help from the experienced traders.

inops.
..... OR was it a 'slam'??? Free-Wheeling??? Or maybe ya ALL are jealous I am living in a CANDY SHOP!!! ?? :cute:

I have concluded from this forum, and messaging some posters here that the major reason FOREX is used is because of the low, Low, LOW $$ amount needed to fund and begin trading. As I have stated before - here in Ukraine I can open an account for $20 USD! :confused:

OZ "The Messiah"
 

trader

Private
So no fight for spot forex?

Much tighter spreads, transparency, no manipulation by brokers, smoother price actions(?) - almost everything seems to point to FX Futures as the preferred medium to trade the currencies, so why are most retail fx traders still going for spot forex?

Reasons:

1. Low entry levels - $20 to open an account,Oz? That's like playing poker machines, with similar odds of winning!

2. Low margins - up to 400:1 leverage ($250 to trade 1 100K units standard lot) in spot forex, versus in futures $2,565 initial margin to trade 1 contract of EUR FX Futures.

3. Marketing - forex brokers are much more vibrant in their marketing, full of hype; futures brokers are dull by comaprison - they have to, due to stringent regulations. Such Retail forex traders as the young, the housewives and the hopefuls, are forever attracted by the promises of getting rich quick through trading the forex.

OK, so for those of us who are mature investor/traders with sufficient capital, is it a foregone conclusion that FX Futures beats spot forex trading hands down? Have I missed something? Please advise before I take the final plunge. Thanks in advance.
 
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OzWizard

Corporal Punishment
Small mistake....

Much tighter spreads,.......... versus in futures $2,565 initial margin to trade 1 contract of EUR FX Futures..........final plunge. Thanks in advance.
... only if you plan to keep position overnight!!!

day trading as low as $250 per LOT

OZ
 
.....

OK, so for those of us who are mature investor/traders with sufficient capital, is it a foregone conclusion that FX Futures beats spot forex trading hands down? Have I missed something? Please advise before I take the final plunge. Thanks in advance.

This is exactly right. If you only trade EURUSD, USDJPY, and GBPUSD spot forex, you would be insane not to trade currency futures at CME instead.

The only reason why some of us also trade spot forex is to have access to more exotic currency pairs such as NZDUSD, etc.

I think its a combination of slick marketing and low margins that are driving people to spot forex instead of currency futures.

One more thing to add about spot forex is that your account is at risk of being robbed by your broker. For example, I had a spot forex account with RefcoFX which was THE largest retail forex broker at the time (larger then FXCM). They declared bankruptcy and used customer funds to pay off investors such as Bank of America. After 2+ years I got back roughly 20% of my original balance. This would not have happened if I was trading currency futures which is a regulated market with regulated brokerages.

Bottom line is if you only trade the major pairs, do yourself a favor and switch to currency futures instead.
 

OzWizard

Corporal Punishment
Kinda AGREE....

This is exactly right. If you only trade EURUSD, USDJPY, and GBPUSD spot forex, you would be insane not to trade currency futures at CME instead.

The only reason why some of us also trade spot forex is to have access to more exotic currency pairs such as NZDUSD,.........
Bottom line is if you only trade the major pairs, do yourself a favor and switch to currency futures instead.
..... BUT, I believe you can trade almost any currency.... I know there is a long list stating whats available. I know you can even trade the RUSSIAN RUBLE!!!! :err:

But do not know about liquidity and/or fills in that one.... I prefer the
UKRAINIAN Grivna !!!! $1.00 usd = 5.05 grivna - Half liter of good beer
is 3.00 grivna !! ;) YOU DO THE MATH!!!

OZ ' In monopoly money LAND! '
 

Attachments

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The only currency futures pairs with enough liquidity to make them "tradeable" are EURUSD, GBPUSD, USDJPY, and maybe CAD.

Anything else is too risky because of low volume.
 

OzWizard

Corporal Punishment
Frank are ya "TANKED" ???

FX currencies are traded AGAINST the USD,

CME Australian Dollar
CME Brazilian Real
CME British Pound
CME Canadian Dollar
CME Chinese Renminbi
CME Czech Koruna
CME Euro FX
CME E-mini Euro FX
CME Hungarian Forint
CME Israeli Shekel
CME Japanese Yen
CME E-mini Japanese Yen
CME Korean Won
CME Mexican Peso
CME New Zealand Dollar
CME Norwegian Krone
CME Polish Zloty
CME Russian Ruble
CME South African Rand
CME Swedish Krona
CME Swiss Franc

There are also 19 'cross-rate'
foreign exchange products that are
non-U.S.-dollar pairs.

The majority are EURO/????

There is no USD/Yen available......

OZ in "Thinks he knows it ALL" Land!
 
futures

Hi I'm very interested in trading currency futures since i only trade the major currencies and I'm hearing a lot of negative talk about forex brokers being dishonest. I was wondering which is the best broker to go through for currency futures and what are the minimum account sizes you need. Plus if you have any relevant links that will provide me with more useful information it would be greatly appreciated.:)
 
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