fx vs futures

[cieszkowski]

I'm a complete greenhorn at this. However, I've been researching the fx market for the last month or so and am beginning to wander what's the difference between trading forex and trading currency futures, say on Chigago ME?

If you take any currency pair example, will the charts be identical? Is one safer than the other? etc.. etc.. I know I will have to pay commissions to a broker on CME, but other than that.

From reading the messeges on this forum, it appears nobody is actually making any money? Is this just an addictive hobby for the SMALL guy? Any enlightment would be appreciated.

[pipscooper]

With futures you have standard contract sizes determined by the CME, a level playing field (globex), and even if your broker goes belly up, your money is held by a clearing member who has strict capital requirements and is usually more financially stable. The spread is usually 1 or 2 ticks during active market hours and you pay a flat fee commission per contract.

With FX spot the contract sizes vary from broker to broker, you trade with a dealer who is affiliated with your broker who usually offers a spread 3-5 pips though some have smaller spreads (depending on the broker and the currency pair). The broker makes its money off the spread not from commission. Some brokers additionally offer guaranteed stops, though there are lots of controversial posts on this subject of brokers not honoring stops. Spot brokering tends to be a much more shady business than dealing through a broker who offers CME trading, due to the regulation on those brokers and the CME. The spot brokers make much of their money by taking the other side of their client's trades so your (money making) interests don't mesh with their interests. If your FX brokers goes belly up you are probably out your deposit. On the plus side, you can trade spot FX with a smaller account and get larger leverage (a two edged sword), and have more flexibility with position sizing than with FX futures.

Even though the FX spot and FX futures move together proportionally for each pair/contract, there is either a premium or discount to the futures price, so the prices are not exactly at the same level. A site that might be of interest to see the spot/futures price differences is offered by the CME for free with registration:

http://equivalents.cme.com:443/index.html

And here is a FX calculator that will help you figure the difference:

http://www.global-view.com/GVR/GVR20.html

Originally posted by cieszkowski
I'm a complete greenhorn at this. However, I've been researching the fx market for the last month or so and am beginning to wander what's the difference between trading forex and trading currency futures, say on Chigago ME?

If you take any currency pair example, will the charts be identical? Is one safer than the other? etc.. etc.. I know I will have to pay commissions to a broker on CME, but other than that.

From reading the messeges on this forum, it appears nobody is actually making any money? Is this just an addictive hobby for the SMALL guy? Any enlightment would be appreciated.

[cieszkowski]

Thanks journeyman, concise and to the point. I will check out the suggested links.

[cresco]

And don´t forget one issue:
When you trade futures, your order is routed thru brokers to CME (Globex) Exchange and all participants orders converge in this market.
Prices are fixed by offer and demand.

In FX you have a bilateral relationship with broker or fx-house and they have the rights to fix the bid-offer prices according with their needs. Teoretically, each broker (FX House) have different prices at the same moment.

Options are not very liquid in futures, but a small trader could take any advantage using this kind of derivatives.