LIQUIDITY: One of the main benefits to being the volume leader is liquidity. Anyone who has traded for any time knows that liquidity, the ability to get into and out of a market freely and efficiently, is critical. This is particularly important in the currencies since they are virtually a never-ending market. Cash currency trading offers high liquidity 24-hours a day. This is in sharp contrast to the poor liquidity on Globex and the EFP's the futures' market only '24-hour' alternative. And this illiquidity is not just for the more obscure currencies like the Australian dollar, but also for the more popular currencies like the Deutsche mark, British pound and the Japanese yen. Some avoid the pitfalls of the illiquid overnight futures markets by skipping Globex and the EFP's altogether, and trading only the day session. However, you're then confronted with another problem; opening gaps. Whether it be a gap well past your stop on the way out or a missed opportunity trying to get in, they can be quite costly. (Chart examples of liquidity: cash and futures.) INSTANT FILLS (...AND AT QUOTED PRICE): Cash currency traders also enjoy the benefit of instantly being filled at the price that's been quoted to them. This is because Interbank trading takes place on an electronic exchange with transactions executed instantly. The futures market can be an entirely different story. When getting a bid-ask in futures, you are often calling a broker. That broker then calls his order desk. That order desk then calls the trading floor. The trading floor relays a message to a runner. The runner then must go to the pit and get the prices. At that point the whole process then starts in reverse in order to get a price back to you. This often results in bid-ask prices that are no longer relevant by the time they reach you. With cash trading however, it's as though you owned a seat on the trading floor because you get the benefit that the floor trader pays a fortune for; dealing directly with other market makers. One call, instant bid-ask, immediate execution. While we're on the subject of bid-asks, it should be noted that often the difference between the bid and the ask in the overnight trade for futures is so enormous, your hope of getting filled at a reasonable price seems impossible. (And don't even think of placing a market order!)
The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. There is a risk of loss in trading and investing and you should carefully consider your financial position before making any trades.
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