|
Spot FOREX
versus Currency Futures
Spot foreign
exchange is always traded as one currency in relation to
another. So a trader who believes that the dollar will rise in
relation to the Euro, would sell EUR/USD. That is, sell Euros
and buy US dollars. Forex-Training.com has compiled the
following guide for quoting conventions:
|
SYMBOL |
CURRENCY PAIR |
TRADING TERMINOLOGY |
|
EUR/USD |
Euro/US Dollar |
Euro |
|
USD/CHF |
US Dollar/Swiss Franc |
Swissy |
|
GBP/USD |
British Pound/US Dollar |
Cable |
|
USD/JPY |
US Dollar/Japanese Yen |
Dollar Yen |
|
USD/CAD |
US Dollar/Canadian Dollar |
Dollar Canada |
|
AUD/USD |
Australian Dollar/US Dollar |
Aussie Dollar |
|
EUR/GBP |
Euro/British Pound |
Euro Sterling |
|
EUR/JPY |
Euro/Japanese Yen |
Euro Yen |
|
EUR/CHF |
Euro/Swiss Franc |
Euro Swiss |
|
GBP/CHF |
British Pound/Swiss Franc |
Sterling Swiss |
|
GBP/JPY |
British Pound/Japanese Yen |
Sterling Yen |
|
CHF/JPY |
Swiss Franc/Japanese Yen |
Swiss Yen |
|
NZD/USD |
New Zealand Dollar/US Dollar |
Kiwi |
|
USD/ZAR |
US Dollar/South African Rand |
Dollar Zar |
Many traders have
made the switch from currency futures to spot foreign exchange
("FOREX") trading. Spot foreign exchange offers better
liquidity and generally a lower cost of trading than currency
futures. Banks and brokers in spot foreign exchange can quote
markets 24 hours a day. Furthermore, the spot foreign exchange
market is not burdened by exchange and NFA ("National Futures
Association") fees, which are generally passed on to the
customer in the form of higher commissions. For these reasons,
virtually all professional traders and institutions conduct
most of their foreign exchange dealing in the spot FOREX
market, not in currency futures.
The mechanics of
trading spot FOREX are similar to those of currency futures.
The most important initial difference is the way in which
currency pairs are quoted. Currency futures are always quoted
as the currency versus the US dollar. In Spot FOREX, some
currencies are quoted this way, while others are quoted as the
US dollar versus the currency. For example, in spot FOREX, EUR/USD
is quoted the same way as Euro futures. In other words, if the
Euro is strengthening, EUR/USD will rise just as Euro futures
will rise. On the other hand, USD/CHF is quoted as US dollars
with respect to Swiss Francs, the opposite of Swiss Franc
futures. So if the Swiss Franc strengthens with respect to the
US dollar, USD/CHF will fall, while Swiss Franc futures will
rise. The rule in spot FOREX is that the first currency shown
is the currency that is being quoted in terms of direction.
For example, "EUR" in EUR/USD and "USD" in USD/CHF is the
currency that is being quoted.
The table below
illustrates which spot currencies move parallel to the futures
contract and which move inversely (opposite):
|
FOREX SYMBOL |
CURRENCY PAIR |
FUTURES SYMBOL |
DIRECTIONAL RELATIONSHIPS |
|
GBP/USD |
British Pound / US Dollar |
BP |
Parallel |
|
EUR/USD |
Euro / US Dollar |
EU |
Parallel |
|
USD/JPY |
US Dollar / Japanese Yen |
JY |
Inverse |
|
USD/CHF |
US Dollar / Swiss Franc |
SF |
Inverse |
|
USD/CAD |
US Dollar / Canadian Dollar |
CD |
Inverse |
|
AUD/USD |
Australian / US Dollar |
AD |
Parallel |
|
NZD/USD |
New Zealand Dollar / US Dollar |
ND |
Parallel |
|
