Forex vs Futures Market

Forex or Futures?

In this battle, we will be able to see if Forex can still uphold its banner on top. Previously, we were able to learn & understand that Forex is bigger and better than stocks. Now, let’s take a look at the Future’s future.

As we all know, forex market has a lot of advantages and benefits over stocks, but it’s not only that. Forex has a lot more things to offer compared to futures market.  So, what  is the edge, or I must say, “edges” of Forex over futures? Let’s name them one by one.

Liquidity (Forex)

Forex market trades four trillion dollars volume daily, which is considered to be the largest and most liquid market in the entire world. This is the reason why it can absorb the trading volume and transaction sizes which makes any other market smaller and weaker. So how much does a futures market trade per day? It’s $30 billion. That’s huge right? But wait, again, that’s nothing compared to the $4 trillion dollars volume that forex trades per day.

When we talk about liquidity, futures market can never compete to forex. Forex market is always liquid. Its positions can be liquidate and stop orders can be executed with no or little spillage except in extremely eruptive market conditions.

24-Hour Market

Trading begins at 5:00 PM EST Sunday in Australia, and it closes at 7:00 PM EST when Tokyo Market opens, followed by London at 3:00 AM EST. New York market opens at 8:00 am EST and closes at 4:00 PM EST. Sydney market opens before the New York trading closes. This only means that the market never sleeps.

As a market player or trader, this market’s characteristic will allow you to react to a favorable or unfavorable news by trading as soon as possible. If an important data comes in from the United Kingdom or Japan while the US futures market is closed, then expect that the next day’s opening could be a wild ride.

Futures currency contracts can exist in overnight markets, but since they are not very liquid like Forex, futures market are thinly traded. This makes difficult for the average investors to access.

Minimal or No commissions

With the advancement of technology and recent innovations, many brokers require you to pay commissions through an Electronic Communications Brokers. However, the commission fees you will be paying is a very small amount compared to what you pay in the futures market. In line with this, a lot of brokers compete with each other offering traders and market players the lowest quotes and very low transaction costs all the same time. This is due to a fierce competition. Now, all you have to do is to choose among the best brokers that offer the best worth for your money.

Certainty of the Price

In forex trading, you will get a rapid execution and price certainty under normal market conditions. On the other hand, futures and equities markets do not offer certainty of the prices or instant trade execution. In spite of the limited guarantees and the advent of electronic trading, the price for fills for futures and equities on market orders are indeed far from certain.

Brokers quote prices, and you have to always remember that the prices they quote represent the last trade. However, you have to be certain that the price do not necessarily represent the price for which the contract will be filled.

Guaranteed Limited Risk

Risk management is a very important factor when you trade. Traders and market players need to have position limits for this purpose. In spot forex market, risk is minimized. The reason behind this is that, the online capabilities of the trading platform automatically generated a margin call when the required margin amounts exceeds the available trading capital in your account,.

Remember: All open positions will be immediately closed during normal market conditions. On the other hand, during the fast market conditions, your position could be closed beyond your loss level.

Now, how about in the futures market?

Your position may be liquidated at a loss more than what you actually had in your account, that is, in the futures market. Furthermore, you will also become liable for any leading shortfall in the account.

Forex vs Futures Market

Just by looking at the table, you will clearly notice that Forex has it all. This is yet another victory for Forex.

In the next lesson, we will find out who trades forex.

Back to Previous Lesson: Forex vs. Stocks

Proceed to the Next Lesson: Who Trades Forex

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