I am looking at the Forex futures market and have some questions. Could you please answer these:
What is the minimum margin (dollar amount) required to trade Forex futures for 1 EUR/USD standard lot ( 100,000 units)
Is it possible to trade micro lots in Forex futures ? Say instead of a standard lot of $100,000 can we trade $10,000 only ? I read about something called “E-Micro Forex Futures”. Is this a valid instrument ?
Please provide some providers for trading the forex futures.
What are the various exchanges where forex futures are traded ?
Can we enter 10 minute trades like we do in regular forex ? Example just make a 10 tick profit ?
Is there a possibility for liquidity reasons (such as lack of liquidity) that you would have to actually go on to actually deliver the underlying instrument in Forex futures, because one could not close out the trade before the end date for the contract for this ?
It varies based on contract values and prices. The exchanges change them from time to time. Plus, brokers can make them larger if they wish. Expect them to be somewhere between 2% and 5% of the value of the contract. It’s generally a little more than you’d find in spot trading.
Is it possible to trade micro lots in Forex futures ? Say instead of a standard lot of $100,000 can we trade $10,000 only ? I read about something called “E-Micro Forex Futures”. Is this a valid instrument ?
Yes. There are what are often called micro contracts, which are 1/10th the size of the base contract.
Please provide some providers for trading the forex futures.
Any futures broker (including some of the larger stock brokers) will allow you to trade forex futures.
What are the various exchanges where forex futures are traded ?
The CME Group (the old Chicago Mercantile Exchange) is the primary exchange in the US.
Can we enter 10 minute trades like we do in regular forex ? Example just make a 10 tick profit ?
Yes.
Is there a possibility for liquidity reasons (such as lack of liquidity) that you would have to actually go on to actually deliver the underlying instrument in Forex futures, because one could not close out the trade before the end date for the contract for this ?
The main contracts are delivery settled. The electronic ones are generally cash settled (no delivery). Check with the exchange through which you’ll be trading to confirm. Or ask your broker.
“somewhere between 2% and 5% of the value of the contract”
Just to confirm, lets say 5% is the margin required. Does that mean that on a standard lot, one only needs $5000 to open this trade ? Because I am a bit surprised - I thought more would be required.
Do they allow shorting and day trading instruments (including micro lots) on the Currency futures at the CME ? Or is there restriction similar to the stock market in the US ? Such as minimum $25,000 to be in the account for you to day trade ? And much bigger margin required to short a stock ?
Is the technical analysis of the currency futures market instrument same as the regular forex ? The chart, support resistance etc ? Or does it involve more factors such as puts and calls - where you look at volatility, beta, gamma etc ?
It’s not necessarily $5000. If EUR/USD is priced at 1.1000, for example, the value of the contract would be $110,000. Thus, the margin requirement would be $5500. That’s actually more than it would be if you traded in the spot market where in the US the margin requirement is only at 2% outside of major volatility periods.
Do they allow shorting and day trading instruments (including micro lots) on the Currency futures at the CME ? Or is there restriction similar to the stock market in the US ? Such as minimum $25,000 to be in the account for you to day trade ? And much bigger margin required to short a stock ?
Shorting and day trading is much easier in futures than in stocks. You’ll want to read up on futures trading if you really want to go that direction. They are fundamentally different in operations than stocks.
Is the technical analysis of the currency futures market instrument same as the regular forex ? The chart, support resistance etc ? Or does it involve more factors such as puts and calls - where you look at volatility, beta, gamma etc ?
Technical analysis is technical analysis. The puts and calls stuff is only when looking at options. The one thing you’ll want to be aware of with futures is the basis. That’s the difference between the futures price and the underlying.
I was looking at the basis for the futures. It is only the difference between the cash market and the futures contract. But I did not find that it would any way impact the price of the contract right ? As an analogy, in options, there is intrinsic value and the time value. The time value of the put/call reduces as the last date for the option approaches. Is there any similar impact of the basis on the future contract price ? Or do we just rely on the chart as though the contract is just a regular instrument with only intrinsic value ?
That’s what I’ve always done. (I trade intraday only, though - clearly the answer’s going to be slightly different for long-term traders.) From my perspective, the difference between the proximal future and spot is that volume information is available for one and not for the other.
Thank you for that link. The content is really helpful to understand the basics.
Hi Lexys,
Thank you for your comment. The additional variables which are difficult to grasp for a beginner and the fact that the value of an option can drop to zero was the reason why I did not further take up options. But the value of a future contract will not drop to zero I guess correct ? (Unless of course, the value of the underlying cash market dropped to zero )
I want to ask guys, why would you trade forex futures though ? Because I thought the point of getting into the forex market was for the huge volume/liquidity and the fact that forex is not as volatile as individual stocks in the stock market. But from what I read, the forex futures market has much lower volume / liquidity than the cash forex market correct? About 200,000 standard lots a day - which is probably not a lot - like only $20 Billion? So you may as well trade stock futures or regular stocks ? Why go for forex futures trading ?
Personally, I switched from spot forex to forex futures (eventually, and on expert advice) simply because volume information is available for futures. It’s actually made a significant difference to me. I do all the same things that I was doing before, but trading from volume bars [I]instead of timed bars[/I], and with better, more reliable/consistent results and smaller drawdowns. Whether this will also be true for anyone else, I don’t know. (My guess - partly because this is what I was quite widely told by trading-floor traders - is that it will be more relevant to intraday, price-action traders than to others.)
It’s perfectly true that there’s less liquidity, but in the sizes I trade that isn’t relevant (I’m not exactly Goldman Sachs: if there’s enough liquidity in many futures for hedge-funds etc. to be trading them, then there’s certainly enough liquidity for me!).
I don’t know anything about stocks, at all - it’s not a trading area that interests me (part of the reason for that is that I avoid fundamentals as much as possible and my perception - rightly or wrongly - is that they’re more important for stock-trading, whereas they’re barely and rarely relevant at all to what I do).
Thank you for the reply. What sizes do you trade ? Do you trade standard lots or micro lots ? Do you also trade commodities and any other instruments ?
Is there any liquidity in the M6E and such other micro lots ?
How about the dollar index ? Is that a good instrument to trade ?
Essentially, yes. The basis will narrow toward 0 as the futures contract approaches expiration/delivery. That means the price of the futures will become closer and closer to the price of the underlying.
Or do we just rely on the chart as though the contract is just a regular instrument with only intrinsic value ?
You can certainly do that. If the basis is small, then effectively it’s the same. And if you’re trading short term then the basis doesn’t really come into play. The only time you might want to think about a different approach is if the narrowing of the basis is actually going to significantly negatively impact your returns. For example, I mean if you want to play the market long and the basis is large and positive, then you’d have a decay factor similar to being long options.
It’s probably best to think of forex futures as simply being a part of the overall forex market, since it is closely linked to the inter-bank market. You shouldn’t ever have much trouble getting a quote in the futures market.
I trade standard lots/contracts, and quite a few now, but needless to say [I]nowhere near[/I] “institutional size”.
Most of my trading is now NQ futures (Nasdaq), which suits me best. I also trade CL (oil futures), and 6E and 6B (Euro and Pound futures - I used to trade almost entirely EUR/USD and GBP/USD when I was trading spot forex).
I don’t trade ES (S&P futures) which are the most popular and liquid but feel to me like “watching paint dry”.
The liquidity in the mini/micro futures contracts is significantly lower and fills/slippage [I]significantly[/I] worse.
And I know almost nothing about the Dollar index, sorry.
I’ve been trading futures only since 2015 (after some years trading spot forex, admittedly) - in contrast to me, Rhodytrader has decades of trading experience.
Can you tell how does margin for these contracts between brokers compare? Are there micro lots like in FOREX? What is regular margin for oil contract for oil contract or currency futures? Thanks in advance.
I don’t trade ES (S&P futures) which are the most popular and liquid but feel to me like “watching paint dry”.
LOL !
Thank you again for the reply Lexys !
Oil - it is dependent on geo politics and other fundamentals right ?
The liquidity in the mini/micro futures contracts is significantly lower and fills/slippage significantly worse.
Are there instruments where the risk per tick and margin requirements is lower - less than $ 5 per tick and $1500 max margin per lot with good liquidity and other factors such as less slippage [edited to add] - and not dependent on fundamentals like you said earlier [edit complete] ? As a beginner I do not want to go for big numbers per tick.
Also, is there a concept of Futures contract writing ? Similar to the options writing ?
Futures positions [I]are[/I] contracts. The two differences are there isn’t any optionality to them and neither party is paid to “write” the contract. It’s just an agreement to make an exchange at a future time.
The exchanges set minimum margin requirements. Brokers can set higher requirements, but they generally will stay pretty close to the exchange level.
Are there micro lots like in FOREX?
The smaller contracts in forex futures are equivalent to what we’d call mini in retail forex. They don’t go down to what we’d call micro. That’s a big hurdle for many would-be futures traders.
What is regular margin for oil contract for oil contract or currency futures? Thanks in advance.
Google futures margins and I’m sure you’ll find what you are after.
Allegedly. But in a funny way, oil is also actually subject to fewer and more predictable regular “scheduled announcements” than many instruments. There’s a brief period on a Wednesday afternoon (UK time) when I don’t trade it, and that’s about it.
I do fast-ish intraday trading only, and fundamentals are barely and rarely relevant to me.
NQ (and I think some other things) are $5 per tick (that’s $20 per point, contract).
[I]Initial intraday[/I] margin with Interactive Brokers is about $7,300 for 6B, $6,900 for 6E, $2,120 for CL - per contract. I don’t know how other brokers compare (probably higher?).
There are [I][U]some[/U][/I] “mini” contracts, but with worse liquidity and far more significant slippage-risks: I wouldn’t touch them, myself.
I hear you. Futures are not for beginners at all. And if you want to look at the volume of the “front” month for forex futures, to help you to trade spot forex, you can do that (for a small fee) without needing to trade the futures, anyway.
