If grains won't cooperate, then...

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Saving Money Trading Forex

The Chicago Mercantile Exchange allows futures traders to trade Forex with tighter spreads and lower commissions.

Most of the Forex brokers claim that their trading is commission-free, but this isn't entirely truthful. Weren't they ever taught by dear old Mom to tell the whole truth? Instead of charging a commission, they just widen the bid/ask spread and make their profits that way. It is much more expensive for a trader to trade that way, because that bid/ask spread ultimately comes out of of the trader's pocket! There is no free lunch, and we traders are paying for the lunch!

I have come to learn that it is to the benefit of traders for orders to be processed through a centralized exchange like the CME. Since all orders are processed through the exchange, spreads are generally only 1 tick for liquid futures contracts. With a commission of only about $4 per trade, the break-even point is only 1-2 ticks.

Contrast that with the typical Forex broker. They charge no commission (so they say), but instead, they widen the bid/ask prices to 3-5 pips. Thus, your cost is at least $30-$50 just to break even. You must make from 4-6 ticks/pips before you can make a profit. And that's assuming there is NO slippage! This is the dirty little secret that the brokers of the retail Forex industry hope traders will never learn. They make their livelihoods from trader ignorance! But ultimately these brokers shoot themselves in the foot; because the churn in retail Forex traders is so high, they must constantly replace their client base. Their marketing costs sky-rocket, and they spend astronomical amounts of money seeking to constantly bring in new business. No wonder they widen their spreads so much!

Which would you rather do? Trade the retail Forex market, where you must make $40-$50 just to break even, or trade the currency futures through the CME, where you need to only make 1 tick ($10-12.50) to break even? The answer should be obvious!

As an example of this, my own broker funnels their Forex trades through one of the world's largest, most prominent Forex brokers. If I trade Forex (major crosses) through my broker, they charge me $2.67 per trade with a bid/ask spread of about .5-1.5 ticks (pips). However, if I trade directly with the same Forex broker at the retail level, instead of through my own at the wholesale cost, that same Forex broker widens the bid/ask spread to 3-5 ticks (ticks=pips), a difference of at least $30 in cost to the trader! The orders are both processed through the same company!

That's why I trade Forex through the Chicago Mercantile Exchange, where I pay about $4 plus 1 tick spread on futures processed through the CME exchange, rather than trade Forex through a retail Forex broker. I can also trade through my futures account rather than open a separate account just to trade currencies. It all comes down to MONEY - MY money!

In a business in which most people lose money, I'm not going to throw money away by spending more than I need to. The bid/ask spread is of critical importance in trading profitably. The tighter the spread, the more money in MY pocket.