Locked-in Range Analysis: Why most traders must lose money in the futures market (Forex) - страница 2

Since Forex market is an over-the-counter market, and the transactions made in it (demand and supply) cannot influence the change in quotes, futures on the relevant currencies should be used for analysis and forecasting.

Table 2. The most liquid CME currency futures contracts as of 01.02.2017 and the corresponding Forex currency pairs. Types of Quotes – US dollar is not the domestic currency. Volume data source: cmegroup.com

Charts of Forex direct quotes are a mirror image of the relevant CME futures charts. Charts of Forex cross quotes (Examples: AUD/CAD; AUD/JPY; CAD/JPY; EUR/AUD; EUR/CAD; EUR/GBP; EUR/JPY; GBP/AUD; GBP/CAD; GBP/JPY) are the mathematical relationships of direct and indirect quotes, therefore, those who trade cross quotes are Lucky-traders.

What Are Futures?

Standardized (according to quality, quantity, delivery time and place) contracts, for the purchase and sale of financial instruments or physical commodities, for future delivery on a regulated commodity futures exchange.

Who Trades Futures?

Conventionally, traders are divided into two main categories, hedgers and speculators. Hedgers use the futures market to manage (to reduce or limit) price risk associated with an adverse price change. (Examples: airlines hedging fuel costs; jewelry manufacturers hedging the cost of gold and silver; farmers sell futures on the raised crops to hedge against a drop in commodity prices;). Speculators, on the other hand, accept that risk in an attempt to profit from favorable price movement. While futures help hedgers manage their exposure to price risk, the market would not be possible without the participation of speculators. They provide the bulk of market liquidity, which allows the hedger to enter and exit the market in an efficient manner.

Why Trade Futures?

In addition to hedging, futures trading provides the trader (risk-taking investor) with greater flexibility because of liquidity and capital efficiency because of leverage.

Leverage is an amount of money deposited by both the buyer and seller of a futures contract to ensure their performance of the contract terms. The performance bond may represent only a fraction of the total value of the contract, often 2 to 12 %, making futures a highly leveraged trading instrument. Therefore, futures contracts represent a large contract value that can be controlled with a relatively small amount of capital.