Forex Trading vs. Futures

Did someone say they could see the future of Forex through a crystal ball? Well, there are a lot of advantages to trading Forex over futures and none of them include crystal balls, time travel or just about any other gimmick you can think of that would tie into this joke. So, here’s a look at some key differences between Forex trading and futures:

1 – Solid Pricing

When you trade Forex under normal conditions your trade can be executed instantly. This means that the price you based your trade on will not change in the milliseconds it takes for the trade to be completed. In Futures this is very different. Although electronic trading tools exist, trading the futures market does not include instant execution. Plus, the price you are using for the basis of your trade is usually the price quoted from the last trade and not usually the price that will be offered as soon as the trade is completed.

2 – Risk Limitation

In Forex trading, you require what is known as position limits. This is a form of risk management because it is relative to how much money is sitting in your trading account. In other words, it basically keeps you within your spending budget limit. Margins are also part of the equation but everything stays within the total amount of your trading account. This keeps you from slipping into the hole and spending additional time trying to get out of it. When trading futures, you risk having a position liquidated at a loss that far exceeds the amount available in your trading account. The sad side to that is you will have to pony up the difference in order to bring your account back into good standing (with money that does not equal a negative value).

3 – Different Amounts of Liquidity

The Forex market is the most liquid market on the planet. That’s thanks to over $5-trillion trading daily. The futures market sees about $30-billion traded per day. It doesn’t take a rocket scientist to see that futures have limited liquidity and Forex doesn’t. What’s that mean to you? Well, for starters as Forex is always liquid, orders can be executed with regularity and minimal slippage. The only exception being when the market conditions happen to be severely volatile.

The futures market can’t compete. In fact, it can’t even pretend to compete because the system over there is so completely different to Forex. Plus, you can trade Forex anytime. What we mean by that is time is not a factor. Markets are open all day and all night. You could look at Forex as the Las Vegas of trading markets because they never completely close and you can hop from one to another with ease.

The Futures market is much like your neighborhood shopping mall. A lot of variety, some unique, funky possibilities but it still closes for the night and everyone goes home for a good night’s sleep before the alarm clock goes off the next morning.

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