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The
spot Forex market is a $1.4 trillion daily market,
making it the largest and most liquid market in the
world. This market can absorb trading volume and
transaction sizes that dwarf the capacity of any other
market. If you compare this to the $30 billion per day
futures market it becomes clear that the futures
markets provide only limited liquidity. The market is
always liquid, meaning positions can be liquidated and
stop orders executed without slippage.
The
Forex market is a seamless 24-hour market.
At 5 PM Sunday, New York time, trading begins
as markets open in Sydney and Singapore. At 7 PM the
Tokyo market opens, followed by London at 2 AM, and
finally New York at 8 AM. As a trader, this allows you
to react to favorable/unfavorable events by trading
immediately. It also gives traders the added
flexibility of determining their trading day.
By
comparison, the currency futures markets in the United
States, such as the Chicago Mercantile Exchange and
Philadelphia Exchange, have regulated hours. The CME,
for instance, opens at 8:20 AM EST and closes at
2:00PM. Therefore, if important data comes in from
England or Japan while the U.S. futures market is
closed, the next day’s opening could be a wild ride.
The
futures market is known for inconsistent execution,
both in terms of pricing and execution time. Every
futures trader has experienced a half hour wait for a
market order to be filled and been executed at a price
far away from where the market was supposed to be
trading. Even with electronic trading and limited
guarantees of execution speed, the price for fills on
market orders is far from certain. Online Trading Company
offers instantaneous execution and price certainty. On
the Online Trading Company trading platform, traders
execute directly off real-time streaming prices. There
is no discrepancy between the displayed price and the
execution price. This
holds true even during volatile times and fast moving
markets. In the futures market, execution is
uncertain because all orders
must be done on the exchange. This creates a situation
where liquidity is limited by the number of
participants which in turn limits quantities
that can be traded at a given price. Real-time
streaming prices ensure that market orders, stops, and
limits are executed without slippage and/or partial
fills.
In
the futures market traders must pay a spread and a
commission. All traded financial products have a
“bid” (buy) price, and an “ask” (sell) price,
with the difference defining the spread, or cost of
execution. Up until recently, lack of transparency in
the futures market has disguise the spread. Now online
trading platforms, which show the depth of the market
by including both the “buy” and “sell” price,
allow traders to see the real cost of the trade.
Currency trading
offers spreads that are much lower than what can be
obtained when buying or selling futures (especially in
after-hour markets). This is because
futures traders are more vulnerable to liquidity risk,
which results in wider dealing spreads.
Online Trading Company
charges no commission or transaction fees to trade
spot foreign exchange online or over the phone. The
over-the counter structure of the FX market eliminates
exchange and clearing fees, which in turn lowers
transaction costs.
Online trading technology, which gives direct
access to Online Trading Company prices, also lowers
transaction costs, which in turn eliminates the need
to charge a commission. All
clients have access to dealable bid/ask quotes. In the
futures market the prices represent the LAST trade,
not necessarily the price for which the contract will
be filled. This lack of transparency hides the true
cost of the trade.
In
the spot FX market, traders can see the value of their
positions and account equity move up and down with the
market in real-time. The
key information for every account is re-calculated and
updated every time the exchange rates change. Traders
have immediate access to detailed information
regarding every open position, open order, and the
generated P/L per trade. Traders also have 24-hour
access to full, real-time snapshots of their account
statement since inception, or on a daily, weekly,
monthly, or yearly basis. As a trader this means you
never have to approximate your account
equity or be uncertain in regards to available margin.
For
the purpose of risk management, traders must have
position limits. This number is set relative to the
money in a trader’s account.
Risk is minimized in the Spot FX market because
the online capabilities of the trading platform will
automatically generate a margin call if the required
margin amount exceeds the dollar value of the account
as a result of trading losses. All open positions will
be closed immediately regardless
of the size or the nature of positions held within the
account. If futures market moves against you
your position may be liquidated at a loss and you will
be liable for any resulting deficit in the account.
You can end up in the negative zone in your account.
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