Thursday, January 29, 2009

Trading Forex with Futures

Trading currency futures or major Forex pairs makes no difference at all. The spread is 1 pip usually, so why bother with futures? Well, currency futures are traded on a regulated exchange, while Forex is not. Some see no difference, I do. Still the major reason I like futures compared to Forex is just a plain old habit: I'm used to trading futures.

Still I need to revert to Forex, when I want to deviate from the major Forex pairs, do I?

Let's start with the basics. This are the major FX pairs:

EUR/USD Fx (Euro) trades as EUR futures (6E on Globex) (1 Tick = 12.50$)
GBP/USD Fx (cable) trades as GBP futures (6B on Globex) (1 Tick = 6.25$)
USD/JPY Fx trades inverted as JPY futures (6J on Globex) (1 Tick = 12.50$)
AUD/USD Fx trades as AUD futures (6A on Globex) (1 Tick = 10.00$)
USD/CAD Fx (loonie) trade inverted as CAD futures (6C on Globex) (1 Tick = 10.00$)
USD/CHF Fx trades inverted as CHF futures (6S on Globex) (1 Tick = 12.50$)

In Forex some Majors are quoted as Currency against the US Dollar, others are quoted as US dollar against the other currency.

In Futures trading all currencies are quoted against the USD. Also compared to Forex the Tickvalue is fixed.

There are cross-currencies in futures as well, but with the exception of the EUR/JPY (RY H9 on Globex) they have no volume at all and should be avoided for trading, as the spread is just too wide to trade them.

Still looking at charts of GBP/JPY or EUR/JPY you might be tempted to trade them. You try and realize, it's just not working. You have been spoiled by futures trading and are just too used to your trading platform.

But there is a way around:

Most major cross-currencies can be traded using a major pair, which means you can trade them using futures as well

Cross-Currency Major FX Major FX Future Future Value Tick
long EUR/JPY long EUR/USD long USD/JPY long 6E short 6J 250,000$ 12,50$
long GBP/JPY long GBP/USD long USD/JPY 2 long 6B short 6J 250,000$ 12.50$
long CHF/JPY short USD/CHF long USD/JPY long 6S short 6J 250,000$ 12.50$
long EUR/GBP long EUR/USD short GBP/USD long 6E 2 short 6B 250,000$ 12.50$
long AUD/CAD long AUD/USD long USD/CAD long 6A short 6C 200,000$ 10.00$

Other can not be traded using futures, unless you trade a certain size, as the tick value on the futures is not identical

Cross-Currency Major FX Major FX Future Future Value Tick
long AUD/JPY long AUD/USD long USD/JPY 6 long 6A 5 short 6J 1,250,000$ 62.50$
long CAD/JPY short USD/CAD long USD/JPY 6 long 6C 5 short 6J 1,250,000$ 62.50$
long EUR/AUD long EUR/USD short AUD/USD 5 long 6E 6 short 6A 1,250,000$ 62.50$
long EUR/CAD long EUR/USD long USD/CAD 5 long 6E 6 short 6C 1,250,000$ 62.50$

For Shorts the positions have to be reversed.

Cross-Currency Major FX Major FX Future Future Value Tick
short EUR/JPY short EUR/USD short USD/JPY short 6E long 6J 250,000$ 12,50$
short GBP/JPY short GBP/USD short USD/JPY 2 short 6B long 6J 250,000$ 12.50$
short CHF/JPY long USD/CHF short USD/JPY short 6S long 6J 250,000$ 12.50$
short EUR/GBP short EUR/USD long GBP/USD short 6E 2 long 6B 250,000$ 12.50$
short AUD/CAD short AUD/USD short USD/CAD short 6A long 6C 200,000$ 10.00$

Other can not be traded using futures, unless you trade a certain size, as the tick value on the futures is not identical

Cross-Currency Major FX Major FX Future Future Value Tick
short AUD/JPY short AUD/USD short USD/JPY 6 short 6A 5 long 6J 1,250,000$ 62.50$
short CAD/JPY long USD/CAD short USD/JPY 6 short 6C 5 long 6J 1,250,000$ 62.50$
short EUR/AUD short EUR/USD long AUD/USD 5 short 6E 6 long 6A 1,250,000$ 62.50$
short EUR/CAD short EUR/USD short USD/CAD 5 short 6E 6 long 6C 1,250,000$ 62.50$

16 comments:

Newton Linchen said...

Hello, Cris

This week I started an English version of my brazilian blog.

Would you come visit me? http://newtonlinchen.wordpress.com

I was wondering if I could add tyo to my blogroll.

Best Regards,

Newton P. Linchen

Globetrader said...

Hi Newton,

of course you can add me.
best regards,

Chris

Newton Linchen said...

Cris,

Perhaps you would like to take a look at this two books: "Keith Schap has a good book called “The Complete Guide to Spread Trading.”

Moore and Tepky wrote a pretty good book, “Encyclopedia of Commodity and Financial Spreads”

These are good starts for thinking differently, and looking at a spread relationship for everything that moves."

They are an indication from Jeff, http:masteroftheuniverse.wordpress.com

Best Regards,

Newton Linchen

Joe said...
This comment has been removed by a blog administrator.
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Cheers

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