Currency Futures Trading - Home
Hello and a warm welcome to another of my sites on futures trading, and this time we are going to look specifically at currency futures trading. Now if you have never traded futures contracts before, I would urge you to start by having a look at another site which provides an introduction to the whole world of trading in futures, which can be found in the navigation bar at the top of each page. These are highly leveraged financial instruments, and not for the novice trader or investor. Now having said that, the currency futures market in particular is developing very fast, and changing all the time, as exchanges around the world develop and introduce products designed specifically for the smaller retail trader.
Now one of the other reasons for developing this site was also to correct some of the misinformation which has developed around the forex market in general, and in particular when it comes to currency futures. Much of the information is incorrect, either through genuine mistakes and misunderstandings, but more often as a result of marketing hype from the brokers.
Over the next few years, I believe the major exchanges around the world will play an increasing role in offering retail traders a range of diverse products, which will take on the forex brokers, head to head. In my view this can only be a good thing in the longer term, as currency trading moves from the unregulated, opaque and secretive markets of the brokers, to the liquid, transparent and regulated world of the major exchanges.
Currency Futures Trading - Introduction
Now, 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!
OK - 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. Currency futures trading is no different.
