the forex market is by far the largest and most liquid in the world, day
traders have up to now focused on seeking profits in mainly stock and
futures markets. This is mainly due to the restrictive nature of bank-offered
forex trading services.
1. Bid/Ask Spread rates
Spread rates have
tightened dramatically in the last years. Most online forex brokers offer
a spread of 5 pips on EURUSD which is the most widely traded and liquid
In the futures market spreads can vary anywhere between 5 and 9 pips and can become even larger under illiquid market conditions (which tends to happen substantially more often in futures currencies).
2. Margins requirements
Usually a foreign exchange trading with a 1% margin is available. In layman's terms that means a trader can control a position of a value of USD 1'000'000 with a mere USD 10'000 in his account. By comparison, futures margins are not only constantly changing but are also often quite sizeable. Stocks are generally traded on a non-margined basis and when they are, it can be as restrictive as 50% or so.
3. 24 hour market
Foreign exchange market
trading occurs over a 24 hour period picking up in Asia around 24:00 CET
Sunday evening and coming to an end in the United States on Friday around
23:00 CET. Although ECNs (electronic communications networks) exist for
stock markets and futures markets (like Globex) that supply after hours
trading, liquidity is often low and prices offered can often be uncompetitive.
Futures markets contain
certain constraints that limit the number and type of transactions a trader
can make under certain price conditions. When the price of a certain currency
rises or falls beyond a certain pre-determined daily level traders are
restricted from initiating new positions and are limited only to liquidating
existing positions if they so desire. This mechanism is meant to control
daily price volatility but in effect since the futures currency market
follows the spot market anyway, the following day the futures market may
undergo what is called a 'gap' or in other words the futures price will
re-adjust to the spot price the next day. In the OTC market no such trading
constraints exist permitting the trader to truly implement his trading
strategy to the fullest extent. Since a trader can protect his position
from large unexpected price movements with stop-loss orders the high volatility
in the spot market can be fully controlled.
Equity brokers offer
very restrictive short-selling margin requirements to customers. This
means that a customer does not possess the liquidity to be able to sell
stock before he buys it. Margin wise, a trader has exactly the same capacity
when initiating a selling or buying position in the spot market. In spot
trading when you're selling one currency, you're necessarily buying another.
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