Day or Swing Trading currencies with a good day or swing trading system can be a challenge, yet a very lucrative and profitable way to make a lot of money in the long run. Cash forex markets have been around for a long time but currency futures markets are growing rapidly too with the onset of twenty four hour round the clock electronic trading.
It is very important to understand the difference between trading forex or trading the currency futures or it is very easy to lose your shirt trying to trade either. Forex trading is done over the counter (OTC), while currency futures are traded on a central exchange like the CME Group with central counter party clearing. Currency futures are definitely a lot better suited to the day trader who is usually working with a small amount of capital.
In the over the counter markets there are several layers for a small trader to peel off to be able to get the same price an institution or hedge fund might get. In the futures markets there is a central counter party doing all the clearing which takes off the credit issue right away off the table. This is the biggest advantage available to the small trader as they will get the same price a large fund or institution will pay for the same currency. In the OTC markets you have the flexibility of trading an odd amount which you cannot do in the futures markets as they have fixed size contracts that trade on the exchange. To overcome this issue the CME has different size contracts available to traders.
And with futures trading almost 24 hours a day now the appeal of the forex market that trades 24 hours a day is not so appealing any more. The other biggest advantage of trading the currency futures contracts is the commission you pay for trading. Forex trading has a spread of 2 to 3 pips on every trade. Plus in forex you are never sure of the price you are paying as the price shown to a small trader is only an average of prices traded at several large banks. On the other hand the price at the exchange is the only price at that particular moment in time available to all trading at that time, whether it be a small trader or a large institutional trader.
Because of the advantages outlined above it is best for the smaller traders to trade the most liquid currency futures contracts like the Euro or the British Pound 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 dealers in the OTC markets have an unfair advantage over the little trader.
Source by Edward Kingston www.positivestocks.com