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www.SniperForex.com © 2003 - 2008 GJ Pavkovich - Forex Online Stock Trading Software Options Newsletter
Forex Online Stock Trading Software Options Newsletter SniperForex
Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all or more of your investment therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading. This website, SniperForex, G.J. Pavkovich, and anyone associated with it, cannot be held responsible for any losses incurred. Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Foriegn equity market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.
There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair.
Moreover, the leveraged nature of foreign equity trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses. To manage exposure, employ risk-reducing strategies such as 'stop-loss' or 'limit' orders.
There are risks associated with utilizing an Internet-based trading system including, but not limited to, the failure of hardware, software, and Internet connection. This website, SniperForex, G.J. Pavkovich, and anyone associated with it, cannot be held responsible for communication failures or delays when trading via the Internet.
Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. This website, SniperForex, G.J. Pavkovich, and anyone associated is not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. We have taken every possible measure to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.
Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all or more of your investment therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading. This website, SniperForex, G.J. Pavkovich, and anyone associated with it, cannot be held responsible for any losses incurred. Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Foriegn equity market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.
There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair.
Moreover, the leveraged nature of foreign equity trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses. To manage exposure, employ risk-reducing strategies such as 'stop-loss' or 'limit' orders.
There are risks associated with utilizing an Internet-based trading system including, but not limited to, the failure of hardware, software, and Internet connection. This website, SniperForex, G.J. Pavkovich, and anyone associated with it, cannot be held responsible for communication failures or delays when trading via the Internet.
Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. This website, SniperForex, G.J. Pavkovich, and anyone associated is not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. We have taken every possible measure to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.
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Futures Exchange Trader Online
What are Futures and how do they relate to forex?
Currently around 7% of the total foreign exchange market is traded in futures. For the novice trader currency futures are probably not the most viable option. Both markets have their specific advantages and disadvantages, but for the new currency trader the spot market wins hands down in one area, which is lot size. Some brokers even offer 1:1 for new traders. Most traders use mini lots of 10,000 units which equate to approximately $1 per pip, while more experienced traders with a larger equity base move to standard lot sizes of 100,000 units. These are very similar in size to currency futures contracts, so if you are trading in these lot sizes, futures may well be an appropriate option. 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 are still a considerable size above the mini lots offered on the spot fx markets.
The Chicago Mercantile Exchange is the largest currency futures exchange and is where the bulk of currency futures are traded. Floor trading takes place during normal exchange hours, but Globex, which is the electronic platform, is open from 17.00 pm until 16.00 pm the following day, Monday to Friday, with the system closed every day for an hour between 4 pm and 5 pm. Currency futures can therefore be traded virtually 24/5, just like the spot market, take note Futures Exchange Trader Online!
Currency Futures Trading - Contract Size
A typical futures contract has a trade size of 100,000 which is the same as a standard lot size in the spot market ( or 10 x mini lots ), whilst the smallest e-mini such as the Euro, will have a trade size of 62,500 - roughly half, but still not approaching the mini lot sizes of the spot markets.
Currency Futures Trading - Commission
In forex the fee charged by the broker is incorporated into the spread, though as traders we are told that forex trading is "commission free". Certain ECN brokers charge $1.20 per futures contract or $2.40 (plus exchange fees) for the round trip, which starts to make the 2-3 pip spreads look expensive, rather than free! For mini lot trades over longer timeframes this is less of an issue, but for regular lot sizes traded frequently, the trading costs can soon mount up, which every Futures Exchange Trader Online should remember.
Currency Futures Trading - The Spread
As a rule of thumb the spreads in the futures market will be tighter than in the spot market. This is mainly due to increased competition in the currency futures, and whilst the spreads do vary, as in the spot market, typically they tend to average around 1 pip or just below. One of the constant complaints of spot fx traders is the spread manipulation, particularly around major news announcements, a problem not generally encountered by the Futures Exchange Trader Online.
Currency Futures Trading - Interest
Currency futures contracts roll the interest into the contract, whereas the forex broker includes a small profit in the interest he charges on a daily basis for the rollover. For a currency futures contract, if you were to buy a contract with 40 days left to expiry the contract price might be 45 pips lower than the spot market price. If the contract was held until expiry, the two prices would be identical. The interest has initially been "built in" to the contract and decreases in a linear amount, day by day, until expiry. On balance the futures contract is a better proposition when compared against various broker interest charges over the same period.
Currency Futures Trading - Interest Rates
The main difference between currency futures and spot fx contracts lies in the way the interest rate differential of the country concerned is paid for during the life of the contract. In a spot trade the exchange of currency normally takes place 2 days after the initial order has been placed. A futures contract however may settle in 3 months time, on a quarterly contract. In order to derive futures rates for these specific contracts, traders use a combination of spot rates plus or minus "forward points" to obtain the futures rates. Simply put, forward points are points that represent the interest rate differential between the two countries in question. These forward points express the relevant disadvantage or advantage of holding the currency for a specific period of time, in much the same way that we view a carry trade in the spot market - either positive or negative in the interest it pays. The difference here is that with the futures contract this element of positive or negative interest has to be built into the price quoted for the contract.
Currency Futures Trading - Price Inversion
One of the difficulties encountered when comparing currency futures with their equivalent spot prices is that the two markets use different quote conventions, which can be very confusing for the newcomer.
Spot traders should be familiar with the pair conventions that are used, such as GBP/USD, USD/CHF and AUD/USD etc. In the futures convention, where all currencies are based against the US dollar, the quotes are presented differently, as the currency is quoted in terms of US dollars per unit of the other currency being traded. In order to compare futures prices with spot prices, we therefore have to invert the currency pair to arrive at the futures prices. If we take the USD/JPY which becomes the JPY/USD then the spot market price is 106.54, and the futures contract price is 1/106.54=9383, plus the forward points of 31 which give us 9414 ( see in the above example ).
Currency Futures Trading - Profit and Loss
In order to calculate profit or loss on a contract it is vital to have the following information:
The contract size - this is the number of currency units being traded and also called trade unit - for the Euro above, the contract size is 125,000.
Tick value - which is the smallest trading increment for the contract. Tick values vary among different currency futures contracts. For the Euro the tick value is 0.0001. If we buy a Euro FX futures contract at 1.4607, and sell some time later at 1.4615, then our profit ( in US dollars) is as follows :
1.4615 - 1.4607 * 125,000 *0.0001 = $100
i.e. each tick price movement represents a $12.50 increase or decrease in the value of the futures contract. 5 contracts would have resulted in a profit of $500.
As in the spot forex market, it is just as easy to sell short. A contract sold short at 1.4615, with the price falling and then closed our at 1.4602, would result in a profit of:
1.4615 - 1.4602 * 125,000 *0.0001 = $162.50
In summary it can be said that trading spot forex is probably the best way for the novice trader to start, while once some experience has been gained and a sizeable equity is available, Forex futures may provide another, perhaps better, option for the Futures Exchange Trader Online.
What are Futures and how do they relate to forex?
Currently around 7% of the total foreign exchange market is traded in futures. For the novice trader currency futures are probably not the most viable option. Both markets have their specific advantages and disadvantages, but for the new currency trader the spot market wins hands down in one area, which is lot size. Some brokers even offer 1:1 for new traders. Most traders use mini lots of 10,000 units which equate to approximately $1 per pip, while more experienced traders with a larger equity base move to standard lot sizes of 100,000 units. These are very similar in size to currency futures contracts, so if you are trading in these lot sizes, futures may well be an appropriate option. 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 are still a considerable size above the mini lots offered on the spot fx markets.
The Chicago Mercantile Exchange is the largest currency futures exchange and is where the bulk of currency futures are traded. Floor trading takes place during normal exchange hours, but Globex, which is the electronic platform, is open from 17.00 pm until 16.00 pm the following day, Monday to Friday, with the system closed every day for an hour between 4 pm and 5 pm. Currency futures can therefore be traded virtually 24/5, just like the spot market, take note Futures Exchange Trader Online!
Currency Futures Trading - Contract Size
A typical futures contract has a trade size of 100,000 which is the same as a standard lot size in the spot market ( or 10 x mini lots ), whilst the smallest e-mini such as the Euro, will have a trade size of 62,500 - roughly half, but still not approaching the mini lot sizes of the spot markets.
Currency Futures Trading - Commission
In forex the fee charged by the broker is incorporated into the spread, though as traders we are told that forex trading is "commission free". Certain ECN brokers charge $1.20 per futures contract or $2.40 (plus exchange fees) for the round trip, which starts to make the 2-3 pip spreads look expensive, rather than free! For mini lot trades over longer timeframes this is less of an issue, but for regular lot sizes traded frequently, the trading costs can soon mount up, which every Futures Exchange Trader Online should remember.
Currency Futures Trading - The Spread
As a rule of thumb the spreads in the futures market will be tighter than in the spot market. This is mainly due to increased competition in the currency futures, and whilst the spreads do vary, as in the spot market, typically they tend to average around 1 pip or just below. One of the constant complaints of spot fx traders is the spread manipulation, particularly around major news announcements, a problem not generally encountered by the Futures Exchange Trader Online.
Currency Futures Trading - Interest
Currency futures contracts roll the interest into the contract, whereas the forex broker includes a small profit in the interest he charges on a daily basis for the rollover. For a currency futures contract, if you were to buy a contract with 40 days left to expiry the contract price might be 45 pips lower than the spot market price. If the contract was held until expiry, the two prices would be identical. The interest has initially been "built in" to the contract and decreases in a linear amount, day by day, until expiry. On balance the futures contract is a better proposition when compared against various broker interest charges over the same period.
Currency Futures Trading - Interest Rates
The main difference between currency futures and spot fx contracts lies in the way the interest rate differential of the country concerned is paid for during the life of the contract. In a spot trade the exchange of currency normally takes place 2 days after the initial order has been placed. A futures contract however may settle in 3 months time, on a quarterly contract. In order to derive futures rates for these specific contracts, traders use a combination of spot rates plus or minus "forward points" to obtain the futures rates. Simply put, forward points are points that represent the interest rate differential between the two countries in question. These forward points express the relevant disadvantage or advantage of holding the currency for a specific period of time, in much the same way that we view a carry trade in the spot market - either positive or negative in the interest it pays. The difference here is that with the futures contract this element of positive or negative interest has to be built into the price quoted for the contract.
Currency Futures Trading - Price Inversion
One of the difficulties encountered when comparing currency futures with their equivalent spot prices is that the two markets use different quote conventions, which can be very confusing for the newcomer.
Spot traders should be familiar with the pair conventions that are used, such as GBP/USD, USD/CHF and AUD/USD etc. In the futures convention, where all currencies are based against the US dollar, the quotes are presented differently, as the currency is quoted in terms of US dollars per unit of the other currency being traded. In order to compare futures prices with spot prices, we therefore have to invert the currency pair to arrive at the futures prices. If we take the USD/JPY which becomes the JPY/USD then the spot market price is 106.54, and the futures contract price is 1/106.54=9383, plus the forward points of 31 which give us 9414 ( see in the above example ).
Currency Futures Trading - Profit and Loss
In order to calculate profit or loss on a contract it is vital to have the following information:
The contract size - this is the number of currency units being traded and also called trade unit - for the Euro above, the contract size is 125,000.
Tick value - which is the smallest trading increment for the contract. Tick values vary among different currency futures contracts. For the Euro the tick value is 0.0001. If we buy a Euro FX futures contract at 1.4607, and sell some time later at 1.4615, then our profit ( in US dollars) is as follows :
1.4615 - 1.4607 * 125,000 *0.0001 = $100
i.e. each tick price movement represents a $12.50 increase or decrease in the value of the futures contract. 5 contracts would have resulted in a profit of $500.
As in the spot forex market, it is just as easy to sell short. A contract sold short at 1.4615, with the price falling and then closed our at 1.4602, would result in a profit of:
1.4615 - 1.4602 * 125,000 *0.0001 = $162.50
In summary it can be said that trading spot forex is probably the best way for the novice trader to start, while once some experience has been gained and a sizeable equity is available, Forex futures may provide another, perhaps better, option for the Futures Exchange Trader Online.
London |