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[brokensoul08]

Futures vs. Forex



Before you begin reading this let me first say that my intention is not to bash 4X market makers. My intention is to educate you on what you will be getting into if you decide to trade the spot 4X market with a 4X market maker vs. a regulated Futures broker. There is a HUGE difference in the two brokers and it could make or break you as a trader. Be careful in your decisions…


When I began learning how to trade the 4X in 2004 I thought that I had found an answer to all my problems. After all, I was hurt with at serious back injury and needed something I could do from home that wasn’t a scam. The 4X was an ideal solution to my problem…or at least that’s what the brokers wanted me to think…

To be honest, the Forex brokers have the best marketing of anything I have ever seen. You’ve seen it…

• Massive liquidity compared to Futures
• Higher leverage than Futures
• Guaranteed no debit balance
• Trade with any $$$ amount
• Tighter spreads than Futures and Commission free trading
• Earnings are not reported to the IRS
• 24 hour market
• Free data feed, charts and easier technical analysis than Futures

The list goes on for the 4X marketing and I’m sure you’ve seen it all. I bought into it and began learning everything I could about the 4X without giving any other type of trading apparatus a 2nd glance. That was a mistake.

In this document I will spell out exactly what the Forex brokers, specifically the market makers, are not telling you and give the much sought after “TRUTH” about the 4X vs. Futures debate.

First off let me say that I still trade the 4X along side the futures market. The only currency pairs I trade in the spot 4X are the GBPJPY and the EURJPY. All other currencies are traded via the futures market. The main reasons for this is that the manipulation I have experienced with market makers and even some 4X brokers who claim to be ECNs is ridiculous. Since the GBPJPY and the EURJPY are extremely volatile I find that trading these 2 pairs alone in the spot 4X market is worth the risk. But every other currency pair I look at is usually based out of the Futures exchange.

Let’s start hitting these points one by one…


The 4X market has a massive amount of liquidity compared to the Futures market.

This one is true. I’ve seen it estimated that the 4X has a volume of anywhere form $1.5 to over $5 trillion daily. This is anywhere from 30-50 times larger than the US Stock Market. This is one advantage that the 4X does have over the Futures market and it is undeniable. But how much is this actually worth to you and me? Honesty, the largest amount I’ve ever traded per pip / tick is around $250. And that was a one time deal. Most traders that I know trade from 1 – 10 lots / contracts per trade. That’s not a large volume. If you have enough money in your account to trade more than that you either have enough money where you don’t need to trade for a living and you are a speculator or you are over leveraging yourself and are playing on dangerous ground.

The 4X market offers higher leverage than Futures
There is some truth to this but it works to the trades disadvantage rather than their advantage. I’ve seen 4X market makers offer up to 500:1 leverage. Let’s put this into perspective…

On US based currency pairs such as the USDJPY, at 100:1 leverage you can trade 1 standard contract for @ $1000 US in your account. Move this to 500:1 and you only need $200 to trade 1 standard contract. That seems great...to the novice trader who is looking for a quick way to make money.

In all honesty, this is how most market makers make money. Since they don’t push the orders through to the banks and take the other side of the trades themselves, they keep all the losses that the traders incur. So unless you are extremely sure of where price is going, using this amount of leverage is riskier than rolling dice at a casino. Right now, 1 contract of the USDJPY is worth @ $8.90. With a spread of 2 (which is what most brokers offer on the USDJPY) you have @ 20 pips of movement until your account is wiped out. At least at 100:1 you have at least 100 or more until this happens. I’ve seen no reputable broker that offers more than 200:1 in the spot 4X market.

Let’s contest this with Futures…

Futures brokers have a required amount per contract that fluctuates from daily rates to overnight rates which is roughly double the daily margin. In the above example, I spoke of the USDJPY. The futures equivalent is the JPY future, which is a near exact mirror image of the USDJPY.

The day trading margin is for trading during the US session, which is from @ 9:30 – 16:00 EST. The daily amount required to trade 1 JPY future contract on my futures broker, Open E Cry, is $1350 / contract. Also a contract is worth $10 and not $8.90. So you can see that the leverage is @ 80:1 and daily and drops to @ 40:1 for holding positions overnight. In the other documents in this package I suggest trading with Oanda and MB Trading. Oanda offers a max leverage of 50:1 and MB Trading offers 100:1. So you can see that for me, there is not a big difference in the 2 as far as leverage and margin are concerned.

And again, this is MAX leverage available. My rule is to use no more than @ 20:1 and usually 10:1 leverage on any trade. This is not really that big of a deal in terms of the 4X being better than the futures market.

Also, this is just on the currencies. Most futures brokers offer a $500 daily margin for the eminis. This is @ 200:1 leverage if calculated on a per contract basis and my CTS system works extremely well on the eminis, even when using high leverage. This is an advantage the futures market has over the 4x that I am taking advantage of…but I’ll get into that later.

Just an FYI for you…

Here is a link to my broker’s page on margins and offered contracts…

http://atcbrokers.com/futures_resources_margin.htm
Guaranteed no debit balance…

This is true for the most part. In trading futures you do have risk of loosing more in your account than you have. All of the 4X market makers I have seen guarantee that you cannot loose more than you have in your account.

Trade with any $$$ amount…

This is also true. In the 4X market you can trade mini and micro accounts. With Oanda you can trade pennies / pip if you like. In the futures market, the smallest account you can have is @ $2000. This allows you to trade with a $500 intraday margin. This is usually opened by people who want to try and trade the eminis
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[brokensoul08]

Tighter spreads than Futures and Commission free trading…



This is true but you are not paying less. Watch the video “Futures vs. Forex – Spreads” and you will see exactly what I mean. To put it bluntly…the spreads are HIGHER in the Forex market and this more than goes over any commissions you pay to a broker.



Earnings are not reported to the IRS…



I’m not an accountant. I can tell you that if you try and hide money you will probably get caught. The Forex is designated to be a foreign investment. However, if you are a US citizen and you live in the USA, you will probably be subject to taxation on these profits.



Just an FYI…



This last year (2007) I got a statement in the mail from my Futures broker Open E Cry. None of my Forex brokers sent me a statement. After talking to them and to my accountant I was sure that I had to claim those profits as income. If I didn’t do it I would have been considered a tax evader.



24 hour market…



This is true for both spot 4X and currency futures. They are open for trading in the US Sunday evening @ 16:00 EST and close Friday afternoon @ 16:00. The brokers usually refer to the stock market’s hours of Monday through Friday, 9:30 – 14:30 EST and group futures along with that. The big Dow, S&P, NASDQ and other major indicies that are traded in the pit are open during these hours only. As for currencies, the times for spot 4X and Futures are the same.



Free data feed, charts and easier technical analysis than Futures…



All of this is not true. I don’t mean that the charting and data is not free. I mean that there are many futures brokers that offer free charting and data feeds as well. Let’s tackle this one by one…



Data Feed…



Most reputable futures brokers get compensated from the commission only. They have no motivation to skew the data or manipulate price in any way. They make money whether you do or not. That is the way a true broker works. The price you get is what they get directly from the exchanges. There are no ifs, ands or buts about it. It is a true market without an interrupting force.



Since most spot 4X brokers are market makers there is a great deal of price manipulation that can take place. They make money from the spread and they also profit from what you loose. A market maker gets the data from the exchanges and banks just like futures brokers do. However, since they are not regulated the same as futures brokers are, they have much more room to do what they like to the price they give you. Brokers with fixed spreads have it set so you will see a minimum spread of say 3 on the GBPUSD when their quotes give them .5. This gives them what I consider an unfair advantage over the retail trader. Also, during news times this goes absolutely insane. Just pull up a few broker platforms during a news report and you will see exactly what I mean. Their prices are different and vary enough to cause great suspicion. For more info on how a market maker works read my document on brokers.



Charts and Technical Analysis…
This is a flat out lie. If anything charting from futures brokers are more true to the real market price than from a 4X market maker. Since there is no motivation to manipulate the price on the futures side, the price shown in the charts is a true life quote and not what your 4X market maker wants you to see.

Technical analysis is the exact same. Fibonacci, Gann, ABCD patterns, trend lines, pivots and any technical indicator out there are all the same in ANY market you trade. The only thing that is different in certain situations is volume which can give futures traders a HUGE advantage in that market.

Some market makers will say that trading the futures vs. spot is different. Really? Then tell me which one of the below charts is the GBP Future and which one is the GBPUSD…


الصور بالمرفقات ..




As you can clearly see they are nearly identical.

الصور بالمرفقات ..

Next let’s look at the USDJPY vs. the JPY future…


الصور بالمرفقات ..


Ah ha! We’ve finally got a difference…or do we? What you have here is a nearly exact mirror image of each other. When the USDJPY goes up the JPY Future goes down. The difference in the two is that the JPY future increases when the value of the Yen increases. In the USDJPY, since the JPY is the secondary currency, when the Yen increases in value the USDJPY price will decrease. Same principle but the charts are backwards. It’s not a problem…it’s just a little different.

Well that’s about it for the Futures vs. Forex debate. I hope this little bit of information has helped and educated you as to the real differences in the two markets
.
Good fortune to you!



كاتب المقال : Elbert Wade Box, Jr.


© Copyright 2006-2008 Elbert Wade Box, Jr. – All Rights Reserved


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