At the start of each trading session, you will receive an email with the author's futures posts. Due to the ongoing evolution of these two markets, the answer is not as simple as you may think. In this piece, I will discuss what these markets are, identify the advantages and disadvantages of each of these two markets, and discuss how we deal with these markets in the XLT. To begin with, both of these markets are where global currency values exchange rates are determined. These are fantastic markets as they are always moving and the moves and trends are larger than you will find in any other set of markets. The "spot" market is the cash market which means the current value exchange rate of where the currency pair is trading at right now. The "futures" market represents the perception of where that same currency pair will be trading at on a specific date in the future. Both charts show the same opportunity on the same day in the same time frame. The only difference is that the chart on the left is the Cash Futures and the chart on the right is the Euro Spot. This was a buying opportunity on a pullback in price to a pre-determined demand cash. While the charts and this trading opportunity look almost identical, cash that these two markets are very different. Before trading either of these markets, there are certain facts about forex markets you must know. Let's first discuss the Spot market, and its pros and cons. No Central Exchange This means that the market you're trading is the cash your broker is making for you. This can lead to manipulation futures times. There is a reason you hardly see volume in Spot Forex. It is because the real volume is very different than the "trillion dollar" volume you read about in all the marketing. The volume in this market is specific to the volume of forex from a specific broker, depending on how many accounts they have and the size of those accounts. Non — Regulated Slowly but surely, the Spot Forex market is being regulated. It is still one of the least regulated futures around which really can lead to manipulation and risk. Broker Trades Against Client Most but not all Forex brokers don't charge any commissions or fees. Instead, they get paid on the spread. What they do is constantly make a forex that ensures they will profit from your cash. When you push the button to buy or sell, they are on the other side of your trade. This means futures your goals and their goals cannot be in alignment as you are trading against each other. Counterparty Risk When you are trading a semi-non-regulated market, you have to make sure you know exactly where your account is actually being held. Is it being held at a large bank or some account that the broker has rights to? There have been some disaster stories such as Refco not long ago and others that come to mind. Make sure you know where your account is being held and how safe it is. No Commissions You will see marketing for the spot Forex market that suggests "free trading"… If you believe that, I have some beautiful land in the desert for sale with a huge lake in the backyard and plenty of green grass, trust me… Anyway, most but not all Spot Forex brokers don't charge commission, they instead widen the spread in the real market, offer that artificially wide spread to you and get paid on the spread. Typically, a spread in a major pair might be pips but can easily go as wide as 5—10 pips at times. At that rate, commissions would be very cheap so don't be fooled when you see the "no commission" trading marketing material. Huge Leverage In Spot Forex, That is not ideal but it can be done. Don't forget, leverage can work for you and against you, so be careful. Large Trends The Forex market experiences large moves almost daily. There is always a currency pair trending strongly which means very frequent trading opportunity. One Central Market CME The Chicago Forex Exchange CME is the home of the Forex Futures. The CME is one of the largest exchanges in the world and is very well capitalized. Some of the largest Banks use the CME Forex Futures to hedge currency risk. I actually began my trading career on the Currency floor of the CME and understand the power of a central exchange. Transparent Volume Because there is a central exchange, we can see trading volume and open interest easily. Very Regulated SEC, NFA The CME actually has double regulation. They are a futures exchange so they are under the watchful eye of the NFA and the SEC. They are also a publicly traded company so they have another level of regulation that comes with that. Trades Matched on the Globex system As with other Futures markets, the Forex Futures are traded in the trading pit but also on the Globex forex. The Globex system is an order matching futures much like NASDAQ for stocks. There is no broker on the other side of your trade. Instead, when you buy, your order is matched up with a seller like you, not a broker. This leads to a very fair and free market. Trading Times and Markets While people are trading the Spot market at all hours of the day and night, this is not so in the Forex Futures. The higher volume time to trade is the US day session from early in the morning until about cash CST. Outside of those times, there is a futures drop off in volume, especially overnight. Also, while the Cash has most of the Forex pairs that the Spot market has available, at this time, there is not enough volume to trade any Forex pairs outside of the majors against the Dollar. Trading that market or almost any other during the US night session may not be a good idea as there is so little volume. Much more information on Forex Futures can be found on the CME website or by emailing me. Lots of game playing can go on in the Spot Forex market with certain brokers. Remember, they are market makers for the most part. Here is an email from a student that I unfortunately receive very often:. Sam, I took the eurgbp trade today. I got stopped out even though price never hit my stop! I have an inquiry in with the broker. Anyways I'm attaching my trade. Yes, this can happen so you need to be careful. As you can see, this trader took up futures complaint with the broker. This, my friends, is like asking forex bank robber if they robbed the bank. Given the pros and cons of these two gateways to trading global currency markets, what do we do? Here is exactly how we treat these fine markets in the Extended Learning Track XLT Forex class. Because the broker is on the other side of your trade in Spot, it is not a good idea to try and risk 5 pips to make Especially if you put your stop loss order in the market for this trade. More often than not, you will get stopped out of this trade right away because of the spreads created by the broker; this is easy money for them. Instead, when trading the Spot market, we never go down lower than a minute chart. This forces us to find demand support and supply resistance levels that provide opportunities for us to risk 15 forex or so to make 50 or more. Most of our Spot Forex trading opportunities in the Forex XLT have us risking 15 — 25 pips to make at least futures much more. This accomplishes two things. First, it helps solve the problem of getting stopped out by the broker who controls the spread. While they can move the market a bit and try to stop you out, they can't move their market too far away from the real market or they run the risk of losing big. Another important point to remember with the Euro buy setup from the XLT above is that when we Online Trading Academy traders buy at demand, we are forcing the broker to sell at demand and they certainly don't want to do that. This is why they widen the spread so much at the significant demand and supply levels. Second, by staying away from the very micro time frames and only using the 15 minute chart or higher, we are now able to take advantage of the huge moves that happen in the market almost on a daily basis. Even if the brokers were not an issue, you are still better off trading the Forex markets for the larger moves because this is where the large and quality opportunities are. So what about short term trading in Forex? This is where the Forex Futures come in. Forex you can certainly trade the Forex Futures longer-term and shouldyou can easily trade the Forex Futures short-term as the broker is NOT on the other side of your trade. Remember, you are trading on the Globex system which is an electronic order futures system. If you want to trade the Euro on a 2 minute chart, go ahead, just make sure you use the Forex Futures for this and not the Spot. Below are some but not all of the many Forex markets we trade each day in the Extended Learning Track XLT Forex class. Some Popular Currency Markets:. This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial forex whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Trading foreign exchange on margin carries a high level of risk and may not cash suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully cash your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of forex initial investment and therefore you should not invest money that you cannot afford to lose. You should cash aware of all the risks associated with foreign exchange cash and seek advice from an independent financial advisor if you have any doubts. Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept futures for futures loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Show navigation FXStreet User Settings. LATEST FOREX NEWS Latest News Institutional Research. TOOLS Economic Calendar Interest Rates Market Hours. TOP EVENTS Nonfarm Payrolls FED BoC ECB BoE SNB BOJ RBA RBNZ. SECTIONS Shows Schedule Become Premium. SECTIONS Forex Brokers Broker News Broker Spreads. TOOLS Live Chart Rates Table Trading Positions Forecast Poll. Close alert Thanks for following this author! Close alert You've unfollowed this author. You won't receive any more email notifications from this author. Cash Spot Forex No Central Exchange This means that the market you're trading is the futures your broker is making for you. Forex Futures One Central Market CME The Chicago Mercantile Exchange CME is the home of the Forex Futures. Here is an email forex a student that I unfortunately receive forex often: Thanks, Ryan Yes, this can happen so you need to be careful. Some Popular Currency Cash Japanese Yen Australian Dollar British Pound Euro Canadian Dollar Swiss Franc And more… Non US Dollar Related Markets: Filter by topic or author in Education Results. Spot Forex vs Forex Futures, What is the Difference?
Futures or forex trading Which is better for order flow analysis and trading
Futures or forex trading Which is better for order flow analysis and trading
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