Trading Currency Futures
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Trading currency futures offer the perks of a central exchange and transparency regarding the flow of orders as they come into the market. Market participants share a level playing field with volume transparency and the information they use to trade. Traders are provided with peace of mind and can unabashedly focus on improving their performance, which promotes a diverse and liquid trading environment. Confident traders in turn create liquidity in the financial markets.
Trading liquidity persists across many major USD futures currency pairs, including the Euro(6E,) Yen(6J,) British Pound(6B,) Canadian Dollar(6C,) Australian Dollar(6A,) Mexican Peso(6M,) and more. The reasonable margin requirements and competitive trading fees and commissions of the futures market make trading currency futures an attractive option for many styles and types of traders.
However, even though it’s transparent, donâ€™t underestimate the challenge provided by the market itself. Liquidity and tight bid-ask spreads are created from voluminous markets. Importers and exporters hedging their currency risk, financial institutions conducting business, and speculators hoping to earn a living, are all hoping for a better future. This creates a competitive atmosphere with participants jockeying for the best position.Â Itâ€™s definitely an environment to prepare for carefully.
The exchange continues to provide accessibility for traders of many different capital amounts. Trading at 1/10th the size of the larger contract, the E-Micro FX Futures provides a smaller alternative than their larger relative. Although the fees and commissions tend to scale more economically for the larger sized contracts, the micro contracts allow traders more flexibility to size their positions. In addition, they also provide opportunity for creative hedging, spreads, and pairs trading with the bigger contract sizes. A savvy trader may find themselves geographically tracking interest rates.
Trading Currency Futures: Here Are Some Useful Tips for Budding Traders!
Intimately Learn Your Currency Instrument
Itâ€™s common for traders to have a favorite instrument. It can be argued that a traderâ€™s favorite instrument is one that theyâ€™re most familiar with. Currency futures traders tend to find niches as each pair or futures contract will have behaviors unique to itself. As technology advances and the markets continually become more efficient, instrument correlation is more obvious. Though correlated at times, the volatility, price behavior, liquidity, and volume of each instrument or currency will be unique.
- Learn one instrument until you feel comfortable with it. You might find that itâ€™s easier to understand the price movement of other instruments once youâ€™ve studied a single one for awhile.
- Get specific with how you perceive the price movement of your selected instrument.
- Learn your instrumentâ€™s correlation to others. Ask yourself, “how does my favorite instrument, correlate to the others throughout the market and world?”
- Watch or practice that instrument on a demo until you feel confident in explaining what youâ€™re seeing.
Define Your Trading Currency Futures Plan
For novice currency futures traders, the excitement of â€śgiving it a tryâ€ť will often outpace their strategic planning phase. Most traders can remember the thrill of their first few trades. Before long, the reality of the market tends to encroach on a traderâ€™s psyche. Beginners learn that the market is not as easy as they wouldâ€™ve hoped and they wish they had been more thorough in their planning stages.
- Assess who you are as a person. Do you know your personality type? Build a trading plan around yourself and your business needs. If youâ€™re trying to trade a strategy that doesnâ€™t fit your personality, your results will suffer.
- Build a plan that clearly defines when you should or should not trade. If you canâ€™t answer when you should trade, then you should study your instrument further. A desire to learn and improve can be argued as one of a traderâ€™s defining qualities.
- Prepare for different outcomes. Traders tend to romanticize the results they seek. Trust in your plan. Currency futures trading is full of adversity, all trading is. The consistency of yourself, and your plan, is what will help you through the challenging times.
Execute with Discipline
It’s obvious and underutilized that a traderâ€™s discipline will slip when itâ€™s least expected. The best tools, plan, education, and commission structure will be of no help to an undisciplined currency trader. At the pinnacle of adversity, when asked about discipline, traders tend to smile. Itâ€™s a sensitive subject.
- Practice self-awareness and mindfulness. Ask yourself the hard questions. “Am I trading because of a good opportunity, or am I just trying to make-up for a previous trade?”
- Develop good muscle memories and rework bad ones. Sometimes traders pickup bad habits as they learn. Do your best to identify these, as well as other stress that could impact your discipline and focus.
- All traders feel emotion. Donâ€™t let the emotion control your decisions. Trading leveraged instruments may provide you with immediate feedback and that’s not always a positive thing. The markets move quickly and itâ€™s easy to get lost in the action. A good rule of thumb is to try and trade a size that seems boring. If youâ€™re constantly stressed or anxious about your position, it may be too sizable.
- Thereâ€™s no easy way to deal with your own challenging behavior. Itâ€™s a struggle that all traders face. The deciding factor in your success will be how effectively and confidently you manage your failures. Having discipline in all aspects of your trading creates fruitful possibilities.
Get More Insights and Sign Up for A Free Demo Here: https://www.cannontrading.com/software/e-futures-international?q
Author: Josh Meyers, Broker at Cannon Trading Company
Important: Trading commodity futures and options involves a substantial risk of loss. Therefore, recommendations contained in this letter are of opinion only and do not guarantee any profits. There is not an actual account trading these recommendations and past performances are not necessarily indicative of future results.