Many of you reading this will probably be happily be trading in the spot currency market, and with no intention to change, which is fine. As you probably know I use two retail brokers myself for different strategies, as well as using currency options and currency futures to hedge trades. I am not advocating that you make a change, but simply that there are alternatives available, and to be aware of the changing market. As I said earlier, the markets over the next few years will change dramatically and I believe the exchanges will lead the way, offering better execution, complete transparency, and market liquidity, all in a regulated environment. You might also be interested to know that currently around 7% of the total foreign exchange market is traded in futures.
So, as a retail trader, are currency futures a sensible alternative – for the novice trader the answer is probably no, at the moment. As we will see shortly, both markets have advantages and disadvantages, but for the new currency trader the spot market wins hands down at the moment in one area, and that is on lot size, with some brokers even offering 1:1 for new traders. Most traders use mini lots of 10,000 units which equate to $1 per pip ( approx.), whilst larger more experienced traders move to regular lot sizes of 100,000 units. These are very similar in size to currency futures contracts, so if you are trading in these lot size, futures may well be appropriate for you. Mini lots are now starting to be introduced by various exchanges but even these are only 50,000/60,000 units in contract size, so still some way from the mini lots of the spot fx markets.
So in summary, if you are and experienced trader, trading in regular lot sizes in the spot markets, then currency futures may be for you – if you are a novice trader, I would suggest they are probably not for you at this stage, but I can assure you the exchanges will cater for you in due course – the market is just too big to ignore – so keep an eye on developments! So let’s take a look at how the spot, and futures markets compare, and I will assume that you have an understanding of how the futures market works in principle as currency futures trading is no different.
What on earth is Britain doing trying to save the euro?
16 May 2012 at 7:06pm
It's not our job to save the single currency, argues Peter Oborne.
European debt crisis: what does it mean for your holiday euros?
16 May 2012 at 10:58am
Holidaymakers going to Greece will be left wondering whether they should buy some euros now. This Q&A should help.
Investors rush to buy Kate Middleton's gold engagement coin to counter the eu...
14 May 2012 at 2:25pm
The value of the gold coin that commemorated the Duke and Duchess of Cambridge's engagement has risen in value by 70pc.
Australia slashes interest rates by 0.5pc to boost economy
1 May 2012 at 5:57am
Australia slashed interest rates by a half a percent on Tuesday, as the central bank moved aggressively to address a weakening economy and easing inflation.
From Holland to Hollande, the answer is 'No' to Brussels
24 Apr 2012 at 8:02pm
Monetary union is the real cause of the maelstrom in Europe, says Daniel Hannan.
Chancellor George Osborne hails 'significant' renminbi bond
18 Apr 2012 at 6:22pm
London hosted the launch of the first renminbi bond to be issued outside Chinese sovereign territories in a move described by the Chancellor as a 'significant moment' for the capital.
Swiss National Bank steps back into currency markets
5 Apr 2012 at 5:28pm
The Swiss National Bank (SNB) was forced to defend its economy by stepping back into the currency markets on Thursday after fresh eurozone fears prompted panic buying of the Swiss franc.
Australia and New Zealand could adopt single currency
4 Apr 2012 at 3:40pm
Shared Trans-Tasman currency could reduce business costs.
Shop! Mary Portas at Cash Converters
24 Mar 2012 at 7:00am
Shop! Mary Portas remains unconverted by Cash Converters
China cuts back on buying US dollar securities
1 Mar 2012 at 9:47pm
China is cutting back its purchases of US securities as it seeks to diversify away from the dollar, data suggest.
