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.
Procter & Gamble cuts profit forecast on strong dollar
27 Jan 2012 at 7:03pm
Procter & Gamble cut its profit forecast for this year, as the maker of Gillette razors became the biggest US company so far to pin the blame for a weakening performance on the strengthening US dollar.
Davos 2012: Can the Germans stop being German?
26 Jan 2012 at 8:24pm
Angela Merkel will eventually be forced to accept the inevitable, says Jeremy Warner.
The IMF is no longer serving its purpose
19 Jan 2012 at 8:45pm
To save the eurozone, it needs to dispense tough love, not endless bail-outs, writes Jeremy Warner.
Kashya Hildebrand apologises to the Swiss over currency trade
12 Jan 2012 at 10:42pm
The wife of Switzerland's former central bank chief has made a startling TV apology to the Swiss people and her husband for the currency transaction that led to his resignation.
Swiss National Bank chief Philipp Hildebrand resigns over wife's currency trade
9 Jan 2012 at 10:52pm
Switzerland's top central banker has been forced to resign after admitting he could not prove a controversial $500,000 (£324,067) currency trade made by his wife was done without his knowledge.
Can the euro survive another year?
9 Jan 2012 at 9:41pm
The eurozone debt crisis has started the new year as it no doubt means to go on - with an inconclusive summit, an irrelevant commitment to a financial transactions tax (or Tobin tax), and another bizarrely anomalous event in money markets.
Swiss National Bank chief's wife's currency dealings made his position untenable
9 Jan 2012 at 9:30pm
Less than a month ago the name Kashya Hildebrand would only have been familiar to those in the rarefied world of modern art.
Swiss bank chief Philipp Hildebrand quits
9 Jan 2012 at 2:47pm
Philipp Hildebrand, the embattled head of the Swiss central bank, has resigned with immediate effect after admitting that he had no proof that his wife made controversial currency trades without his knowledge.
A wife's toxic dollar deal that could bring down top Swiss banker Philipp Hil...
7 Jan 2012 at 9:38pm
Ill-judged currency bet could topple one of Switzerland's top bankers.
Eurozone recession fears grow and currency slides
6 Jan 2012 at 10:04pm
The euro came under renewed pressure on Friday, falling to an 11-year low against the yen as a fresh round of downbeat data intensified fears the troubled region is heading for recession.
