Futures For You  |  MAY 2010

Futures For You by Carley Garner

Futures For You by Carley Garner CURRENCY FUTURES VS FOREX What are the advantages of trading currency futures as opposed to foreign exchange? If you recall from the April 2010 column, we discussed the implications of government regulation, dealing desks, and counterparty risk when it comes to deciding between currency speculation in the futures or forex markets. However, there are a few other things to keep in mind, such as the true costs, liquidity, margin, and access to options. Transaction costs: The forex industry has done a great job at marketing commission-free trading. Accordingly, speculators have flocked to forex brokerage firms that are structured as dealing desks. These firms make money on the fixed-pip spread rather than a transparent commission charge. On the surface, this seems to be an advantage over trading futures, which involve commission and exchange fees. Nevertheless, the typical forex pip spread of three to five pips provides the brokerage firm with a handsome reward and although it isn’t obvious, the retail trader is paying sizable transaction costs to participate in such a market.

by Carley Garner