Basics

Forex Vs Futures

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In this article we are going to analyze what are the main advantages of trading in Forex, the currency market, compared to doing it in the futures market:

Liquidity

Every day several trillion dollars are moved in operations in the Forex market, making it the most liquid financial market in the world. This market can absorb such amounts of volume and transactions that it makes the capacities of any other market seem dwarfed. The forex market always maintains its liquidity, important positions can be liquidated and stopped with orders executed without decreases, except that the market is, of course, in very volatile conditions.

24 hour market

At 2.15pm EAST on Sundays, traders begin trading in the Sydney and Singapore markets. At 7pm ETS, the Tokyo market opens, followed by the London market at 2am EAST. Before the New York market opens, the Sydney and Singapore markets are already open again, it is then similar to a 24 hour market!

As a Forex trader, this allows you to know the news, favorable or unfavorable, immediately. If there is a major news from England or Japan, while the US market is still closed, the next day there may be a major turn in it. (Overnight markets that work on currency futures contracts exist, but traders don’t have much liquidity and are difficult for the retail investor to access)

Commission-free operations

Do you know what is good about currency trading? There are no commissions to pay! Because it works directly with the market via the Internet, the costs of intermediaries are eliminated. There is an initial cost in any trade you open, but this cost is reflected in the spread between the buy and sell price (called spread), and it is also present in futures operations. Online brokers compensate their services through this difference between the purchase and sale price and not through commissions (except in some cases of ECN-type brokers where they offer a very low spread by applying a volume commission).

Safe price

When trading Forex, there is a fast execution of orders and the price is maintained as long as the market is under normal conditions. On the contrary, other markets do not offer a safe price or instant execution of a trade. Despite the advantage of electronic trading and the guaranteed speed of executing an order, prices in other markets are far from the same. The prices charged by the brokers represent the last trade, not necessarily the price for which the contract will be executed.

Guaranteed risk limit

Traders should be able to open positions by setting a stop loss in order to better manage the level of risk. Furthermore, the total risk is relative to the amount of money in each trader’s account. Risk is minimized in the Forex market because the capabilities of operating on an online trading platform automatically generate a warning if the required margin exceeds the capital that the trader has in his account. All open positions are closed immediately, regardless of the size or nature of the positions held in the account. In other markets, the position is liquidated as a loss and the person is responsible for any remaining debt on the account. That’s not good!

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