Sunday, March 19, 2006

Forex vs. Futures

The global foreign exchange market is the largest, most active market in the world. Trading in the forex markets takes place nearly round the clock with $1.9 trillion changing hands every day. It is the main event.

The benefits of forex over currency futures trading are considerable. The dissimilarities between the two instruments range from philosophical realities such as the history of each, their target audience, and their relevance in the modern forex markets, to more tangible issues such as transactions fees, margin requirements, access to liquidity, ease of use and the technical and educational support offered by providers of each service. These differences are outlined below:

* More Volume = Better Liquidity. Daily currency futures volume on the CME is just over 2% of the volume seen every day in the forex markets. Incomparable liquidity is one of many advantages that forex markets hold over currency futures. Truth be told, this is old news. Any currency professional can tell you that cash has been king since the dawn of the modern currency markets in the early 1970's. The real news is that individual traders from every risk profile now have full access to the opportunities available in the forex markets.

* Forex markets offer tighter bid to offer spreads than currency futures markets. By inverting the futures price to compare it to cash, you can readily see that in the USD/CHF example above, inverting the futures dealing price of .5894 - .5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip spread available in the cash markets.

* Forex markets offer higher leverage and lower margin rates than those found in currency futures trading. When trading currency futures, traders have one margin rate for "day" trades and another for "overnight" positions. These margin rates can vary depending on transaction size. When trading cash markets, you have access to the same margin rates day and night.

* Forex markets utilize easily understood and universally used terms and price quotes. Currency futures quotes are inversions of the cash price. For example, if the cash price for USD/CHF is 1.7100/1.7105, the futures equivalent is .5894/ .5897; a methodology followed only in the confines of futures trading.

More Read Here
USD Mired in Soft Tone by Korman Tam

At 5:00 AM Eurozone January Industrial Production (exp 0.4%, prev 0.1%) At 9:15 AM US February Industrial Production (exp 0.7%, prev -0.2%) US February Capacity Utilization (exp 81.3, prev 80.9) At 9:45 AM US March University of Michigan Consumer Sentiment final (exp 88.0, prev 86.7)

The dollar continued to trade on a softer tone versus the majors in the early Friday session, revisiting its lows from yesterday against the euro. The selling in the dollar on Thursday was prompted by tame US inflation data, which is expected to further ease pressure for additional Fed rate hikes. The focus will continue to remain on US economic data, with recent foreign exchange moves predominantly driven by interest rate expectations. FOMC board members have highlighted the uncertainty that lies ahead for Fed rate policy and will be highly dependent on upcoming economic reports.
Forex market directory

In the session ahead, US data will include February industrial production, capacity utilization and the final reading of the March University of Michigan consumer sentiment survey. Industrial production is forecasted to improve to 0.7%, reversing January’s 0.2% decline. February capacity utilization is seen rising to 81.3, up from 80.9 a month earlier. Lastly, the final reading of the March University of Michigan consumer sentiment survey is expected to edge up to 88.0, compared with 86.7 in the previous report.
Dollar Extends Sell-off by Ashraf Laidi

The dollar damage took a turn to the worse as the currency broke below the 116 yen mark while hitting the 1.22 figure against the euro amid revisions in markets’ expectations for the Fed rate decision. Conflicting speeches from the presidents of the Atlanta and San Franciso Fed left traders mulling the outcome of the May Fed meeting after yesterday’s core CPI reduced expectations of a may hike from Interest 90% to about 75%.

The 0.7% rise in February US industrial production following January’s 0.3% drop had no market impact. Capacity utilization rose 0.4% to 81.2%, matching the highest level since September 2000. The 81.2% cap rate exceeded its 1972-2005 average, which reflects the Fed’s concerns that rising “resource utilization could spark inflation”. Nonetheless, capacity utilization rate in utilities failed to sustain a sufficient rebound from its Jan low and was down 0.2% from February of last year.