Day Trading currencies with a good online trading system can be really challenging, yet it is a very lucrative career that can help a trader make a good amount of money in the long run. Cash forex or spot forex markets have been around for as long as banks have been around but currency futures trading at the CME is growing rapidly with the onset of twenty four hour round the clock electronic online trading on the CME’s Globex fully electronic platform.
A day trader must understand the difference between forex trading in the spot market and currency trading the futures contracts at the CME Futures Exchange or it is very easy to lose money trying to trade either. Forex trading is done over the counter which simply means it is not traded in a central location whereas currency trading of futures contracts is done on a central exchange like the CME Group with a central counter party clearing system firmly in place. Currency futures can be a better choice for the day trader who is usually working with a small amount of capital in his or her account.
In the over the counter markets there are several challenges a small trader must overcome to be able to get the same benefits in the form of price an institution or hedge fund might get. In the futures markets there is a central counter party that takes care of the clearing function which takes off the credit issue faced my many forex brokers off the table. This is definitely a very big advantage enjoyed by the small trader as they will get the same price a large fund or institution will pay for the same currency. In the forex OTC markets a trader has the flexibility of trading an odd dollar amount which cannot be done in the futures markets as they have fixed size contracts that are traded on the central exchange. To overcome this issue the CME has different size contracts called “minis” that are available to traders to choose from depending on their account size and comfort level.
And with the onset of futures trading almost 24 hours a day now the appeal of the forex market that also trades round the clock is not so appealing any more. The other advantage of trading the currency futures contracts at the CME is the commission a trader pays for trading them. Spot Forex trading has a minimum spread of 2 to 3 pips on every currency pair traded and lots more on certain exotic pairs whereas it is always a fixed dollar amount at the CME, usually around $5 for a round turn. In the forex market a trader is never sure of the price he or she is paying as the price shown to them is only an average of prices traded at several large banks that the dealer trades with. On the other hand the price at the CME exchange is the only price at that particular moment in time available to all market participants at that time, whether it be a small trader, a hedge fund manager or even a large institutional trader.
Because of all of the advantages outlined above it is best for an individual trader to trade some of the most liquid currency futures contracts like the Euro, Japanese Yen or even the British Pound offered on the CME Globex Electronic Trading Platform until they have an account big enough to be able to trade directly with the banks on a bank’s platform itself and not trade the OTC markets as the broker dealers in the OTC markets have an unfair advantage over the little trader by trading against their own clients all the time.