Commodity futures and index futures contracts may fall under the futures trading category but they are two completely different types of assets. Dow futures are the derivatives equivalent of the Dow Jones Industrial Average, the leading benchmark stock index for the U. The spot markets and the futures markets are closely interlinked and for the futures trader it is essential to understand how the spot markets operate Both futures and options are derivative instruments, meaning that the prices in futures and options instruments are derived from the underlying asset While there are many different futures trading contracts, in terms of liquidity and volume not every futures contract looks the same.
Choosing a futures broker is probably as important a decision as it can be for a futures trader. Without having the right platform to support you Gold, as an investment vehicle serves its purpose, not just as a hedge against inflation for investors but it has also become an integral part of a di The concept of margin or margin trading is of utmost importance in the trading community, including futures and other derivatives markets spanning acr Futures trading rooms are probably the next step in the evolution of marketing hype that can entice the gullible traders for all the wrong reasons For a beginner to futures trading and sometimes even professional futures traders, keeping track of the trading hours for the various futures contract Treasury bonds and notes are one of the most widely tracked debt instruments in the markets by investors, regardless of their exposure to debt or equi Trading the corn futures markets has its appeal for traders interested in the grains market.
Corn futures are no different from other grains such as w Bonds are perhaps the most interesting of all the financial products that are available to trade. In a world that is fuelled by debt, bonds play an im The British pound is the currency of the United Kingdom and is one of the major currencies used by banks worldwide and therefore it is also referred t Copper futures are part of the metals futures asset group, which is made up of copper, palladium, silver, gold and platinum.
Technically referred to a Silver is often overshadowed by its more famous peer, Gold, be it forex, ETF's or even futures. Despite gold being more popular, silver does manage to In the futures markets, when one makes reference to the futures contracts, the obvious assets that come to mind are commodities such as energies, Soybean is an oilseed crop with the primary purpose of extracting the oil contained in the seeds.
Other well known oilseeds besides soybeans inclu Gold, also known as the precious metal or yellow metal is one of the most well known commodities to mankind. Gold finds its uses from industrial a The most essential aspect in being a good trader is not profitability but consistently.
Being able to consistently make profits from trading the marke So you have learned about the futures markets and the many benefits it has to offer and you are of course curious to getting started.
Futures and forwards are both derivatives financial instruments and look similar in nature. However, when you look at the technical details, futures a Futures and derivatives might look the same, but when you scratch the surface you will find a whole lot of differences between futures and derivat You might have asked yourself this question at some point as you test the waters trading futures. To be honest, the question is as vague as asking how The average retail investor is often spoiled for choice when it comes to the financial markets.
From brokerages offering you discounts on your trades, What is a Futures Contract? A futures contract is something that you might have heard of, either in the media or read about on a website or in the ne It is not surprising that retail forex trading is one of the most popular way to trade the currency markets and for many reasons. From low capital requirements to using leverage to maximize profits and the largely unregulated environment makes forex trading easy for anyone.
The forex spot markets are traded over the counter and therefore there is no centralized exchange. Furthermore, most of the currency market transactions take place on the inter-bank networks with the retail trading category having a rather insignificant market share. Foreign exchange trading is the trading of currencies in the spot markets. The first currency is known as the base currency and the second currency is known as the quote currency.
This is quite different to other markets such as stocks for example where the price is quoted in U. Furthermore, when you buy a currency pair, you are buying the base currency and selling the quote currency. Likewise, when you sell a forex currency pair, you sell the base currency and buy the quote currency. In forex, you trade any combination of the currencies as long as they are liquid and freely or partially floated.
Retail spot forex trading is usually the go-to markets for many retail traders who do not have a large enough capital that they can risk.
With high leverage comes the risk of losing a significant capital as well. However, look outside the U. S and chances are that forex brokerages based in other jurisdictions continue to offer higher leverages, with some brokerages offering leverage as high as 1: For all its advantages and disadvantages, in the context of futures trading, spot forex markets play an important role.
We know that the futures markets are marked-to-market on a daily basis. This simply means that the spot forex markets play an important role in the mark-to-market for forex futures. For traders who want to trade the currency markets, the currency futures asset class offers some of the major currencies that can be traded as futures.
Just as in futures, you are required to put up an initial margin and also have a maintenance margin when trading the spot forex. If you are in doubt as to whether you should trade the spot forex markets or the futures markets, there are several key differences that make futures and forex quite different as you will learn in the remainder of this article. The over-the-counter trade settlement in the spot forex markets makes it decentralized. This means that there is no trade transparency.
The OTC nature of the spot forex markets means that retail forex brokerages can add their own markup to the bid and ask prices to skim some cents off the retail trades. Furthermore, the OTC nature means that there is a counter-party risk. The OTC nature also allows for anonymity among the participants as well. On the contrary, trading forex futures offers a more transparent and a regulated trading environment.
We already know that futures are centralized and therefore traded at an exchange. The futures exchange rulebook requires all participants to put up a performance bond followed by maintaining a maintenance margin at all times. This greatly reduces the risk of a counter party default when you trade forex futures. In the OTC spot forex markets, to buy or sell a currency a trader will have to pay either a commission or a spread mark up.
A spread mark-up is nothing but a mark up on the bid and ask prices that the broker will add. This ensures that the retail brokerage makes a steady profit every time a trader buys or sells the forex currency pair. Furthermore, some retail brokers also add an additional commission as well, on top of the spread mark up thus further increasing the cost of transactions.
And finally, the spot forex positions attract swaps or overnight financing fees. The swaps in the spot forex markets can vary depending on the currency pair that you hold overnight. For example, if you have a long overnight position on EURNZD, the because the interest rate on the New Zealand dollar is higher than the interest rate for the euro, you are debited with negative rollover swap or overnight financing fee.
Conversely, if you held an overnight short position on EURNZD, then your position is credited with a positive swap or rollover fee. Depending on the number of days you hold your position and the currency pair that you are trading, your account will be credited or debited accordingly, which can in turn increase you cost of transaction or reduce it.
When you trade the forex futures markets, the pricing is straight-forward. You only pay a commission on the trade. The commissions you pay can vary based on the futures brokerage that you trade with. But no matter what commissions you pay, the fees are significantly lower than trading the spot forex markets. When you trade forex futures, the different currency futures contracts that you can trade are all quoted in US dollars.
The chart below shows three charts. The chart on the lower right corner is the inverse JPYUSD chart, which shows how some of the forex futures are priced. Therefore, as long as you trade a futures contract that is quoted in USD, you can find a similar spot forex instrument as well.
The table below gives a brief summary. When you trade forex futures, the tick value for the contracts can vary. This is standardized, but when you trade the spot forex markets, the tick value changes. All futures contracts, including currencies have a contract expiry date.
In the spot forex markets, there is no such thing as expiry and traders can buy or sell and hold their positions for weeks, months and even on a quarterly basis. A unique aspect about the currency futures market is the ability to view some information that is otherwise not available in the forex spot markets.
For example, the weekly institutional position reporting, known as the Commitment of Traders report offers currency futures traders, insights into whether the speculators and hedgers are net long or net short on the futures contracts. This is available for the fact that trading futures is done via a centralized exchange and thus it is easier to collate the data.
The information is however applicable to the spot markets as well, due to the interrelation between spot and futures pricing. Because futures trading has more to do with contracts, there can be pricing differences especially during the intraday trading sessions.
In futures, the buy and sell ask prices are determined at what price the buyer or seller wants to transact. Thus, there can be significant price differences between the futures and the spot forex markets but thanks to arbitrageurs and the daily mark-to-market, the price settlement in futures is almost the same as the spot forex markets. For intraday currency futures traders, this could mean trading a premium or a discount against the actual spot forex prices which can play a big role in determining the profit or losses one can incur on the trades.
In conclusion, while forex and currency futures look similar there is a big difference. Forex trading is the trading of currencies currency pairs , while forex futures trading is the trading of contracts for the underlying commodity or asset, in this case the currency.More...