why use forex futures?

[RyanPopa]

Hallo, why would anyone opt for a forex future instead of using the regular transaction?

I understand that when it comes to shares, there is the advantage of leverage, but in futures this doesn't seem groovy as you can also get immense leverage in regulars.
Also regulars offer the advantage of holding on to your position for as long as you wish, when in futures your position is automatically closed at expiration.

This could also apply as I understand to forward contracts on currencies, as the only difference between forward and futures is that forward is over the counter, and futures is done on an exchange.

Thanks,
Ryan

 

[Martinghoul]

What do you mean by 'regulars'?

When a future matures, it doesn't just disappear, you know? You get delivered/deliver the underlying..

Finally, do you understand why there's a need for FX forwards? Ccy futures are, effectively, FX fwds, with the advantage of facing a central counterpary and a promise of better liquidity.

 

[TAjammy]

futures traded on CME for forex are very liquid, tighter spreads, and aren't manipulated by brokers.

 

[RyanPopa]

What do you mean by 'regulars'?

When a future matures, it doesn't just disappear, you know? You get delivered/deliver the underlying..

Finally, do you understand why there's a need for FX forwards? Ccy futures are, effectively, FX fwds, with the advantage of facing a central counterpary and a promise of better liquidity.

I am referring to SPOT. When the future matures, it doesn't disappear, but the only way to hold on it is to rollover your contract to the next maturity.

by central counterpart, you refer to a regulated exchange, as CME?
Anyway, at how big orders do you think you would have problems with forwards? have you ever seen a sharp movement in price thanks to illiquidity in forwards, or it always moved in tandem (with little spread) with the SPOT?

Just asking as a newbie. Thanks

 

[virtuos0]

futures traded on CME for forex are very liquid, tighter spreads, and aren't manipulated by brokers.

Only the majors are liquid.

There is an argument to be made for trading the majors via futures and the rest via spot. Based on the fact that spot is the wild wild west, whereas with futures it's more like Blackpool on a wet Wednesday.

 

[gc1]

... why would anyone opt for a forex future instead of using the regular transaction? ...

Try holding on to a spot position for a month or 3 months and see how much more than the interest rate difference you get charged in roll over fees.

With the future the price converges to match the cash at expiration at a rate which exactly matches the interest rate difference with no mark up.

 

[virtuos0]

Another thing of course, you get volume with futures. Although the major problem is that futures are only a small fraction of overall market volume so the figures may not be representative or helpful. Plus of course you could use the volume to trade spot if you wanted!

 

[Martinghoul]

Guys, you're arguing a whole bunch of different things...

Let's start from the beginning. FX spot and fwds represent completely different, but related instruments. So to say that the two are equivalent if you want to express a specific view is misguided. It's just like rates in that there's a a curve. It's not about rollover, as this is a spread-betting term, which doesn't apply in the real mkt.

There's a large OTC mkt for FX fwds. Just like in all other asset classes, as this mkt developed, some of the OTC liquidity migrated/grew on the exchange. The goal is to avoid counterparty risk and to achieve better liquidity.