Getting Closer to the Real Price
Getting Closer to the Real Price
Each week when writing these regular Lessons From the Pros articles, I hope to share some slices of information which will help Forex traders of all skill levels in their continuing quest for consistency and profitability in their continued market speculation. Over the last year or so, we have discussed a wide variety of Technical and Fundamental approaches, as well as detailing the necessary skills required for solid risk management and trade management practices. I have even talked a number of times about the mental side of trading and how vital it is for all traders to control their own psychology before hoping to achieve the results they so desire. However, from time to time, I come across a new piece of information which I believe could be useful in streamlining and economizing any trader's activities and this week I would like to share my latest finding with you.
As you may already know, I trade pretty much all of the asset classes available in the world today, ranging from Forex and Equities, to Futures and more recently Options. I prefer to use the Spot or cash Forex markets for the majority of my Swing and Position trades, due to the lower and consistent margins we can enjoy as traders and due to the fact that unlike the Futures market, I don't need to concern myself with expiry of contracts if I am looking to hold my position for longer than three months. This is because Spot Forex trades roll over from day to day with a minimal need for maintenance. I do, however, use the Futures markets for my much shorter Intraday trades where I have the added bonuses of real-time market volume and the very best execution technology behind me. I never have to worry about brokers hunting my stops or erratic spikes in price either with the Futures because I am going through a completely regulated market where every participant is facing a "first come first served" scenario. I would encourage all traders to stick to Swing trading the Spot market as they will be using wider stops and looking for bigger moves, so any kind of quote or price fixing by a broker dealer is likely to be easily dealt with in the majority of cases. Futures, on the other hand, with its true price transparency, is the arena for the seasoned day trader. As you may or may not know, however, getting access to real-time CME or other Futures price feeds can be costly on the whole, and if you are trading Spot Forex, it would make little sense to pay out for a Futures price feed for the sake of it.
Until now, this would have been an issue for the Spot Forex trader, but only this week I discovered while browsing the CME Group website, a quick, free and hassle-free solution to the problem of getting that all important Futures price feed. First, go to the following website at www.cmegroup.com and click on the top link for "Forex." Along the right hand side of this page just over half way down, there is a link to "CME E-quivalents," as shown in the example below:
This link will take you to a page which lists, for free, the CME Forex Futures prices in spot equivalent terms. From this page, we have instantaneous conversions of Forex Futures prices into their spot equivalents, real-time prices in all CME Forex markets and even Forward rate quotes for six currencies, giving Forex traders the added advantage of the ability to easily compare the prices between the currency cash and Futures quotes on the fly.
After clicking on the link in the above example, you will be taken to a page with the current price feeds and quotes displayed, along with a variety of other information which I have outlined for you below:
The four main highlighted areas show the following:
- The best Bid and Offers on each currency pair in Spot Equivalent terms
- The top five Bids and Offers in the market right now
- Forward Points for each Forex pairing or in other terms, the Interest Rate Differentials
- The Total Electronic Volume traded on the CME Futures in real-time and the Total Traded Cash value for the day so far
In this example, we can see just how aligned the Spot broker's quote is with the actual price of the current near contract on the parallel Futures contract. Remember that of all the near term and far out contracts available at any one time, the current or nearest contract will always be at a price which reflects the actual spot price, and by seeing how this relates to any price quotes from the various Forex dealers available to open accounts with, the astute trader has the ability to compare the prices and spreads they are receiving from their dealer with the CME's own. By checking this page regularly, you can always see just how "competitive" your broker really is. Plus, with the added benefit of total physical volume and cash value given, day traders can easily monitor daily liquidity in the market place from a reliable source, rather than never knowing what the true market volume really is, a common disadvantage of trading Forex spot.
In summary, I have found there to be very few useful trading tools available online for a cost of nothing, but this CME resource is a definite exception to the rule! Why not give it a try? It may be enough of an eye-opener to make you move your current Forex spot account to another dealer, or even back up the great service you may already be enjoying. I hope it helps.
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