What is the Difference between Forex and Futures?
Highly Trending markets
Because the foreign exchange market does not close, it isn't dramatically impacted by buying programs and cannot be easily manipulated, the Forex market offers some of the smoothest trends available in any market. No other market can come close to the amount of monetary volume and participation as the Forex market making it a haven for traders not having to deal with gaps and price movements, erratic spikes and other choppy market conditions more commonly experienced in the futures markets.
Though some speculators are unaware, ALL financial markets have a spread (the difference between the bid and ask price). In the futures market you are not only paying the spread, but you are also paying commission charges, clearing and exchange fees on top of the spread. Ticker prices in the Futures market typically signify the last traded price, not the price at which you will be filled. In the Forex market, you are paying what's referred to as a PIP or PIP spread. In plain English, as best
we can interpret, what you are paying is the difference between the bid and the ask price. The retail forex market is very loosely regulated, so the way a lot of brokerage firms make their money is to trade the accounts between other accounts within their firm. By doing this, you are eliminating an exchange that would add fees to your trades. You are still getting your bid or ask price, there just isn't someone running to the floor as it's all done internally.
Trading in the spot currency markets provides advantages over trading currency futures contracts. One of the main advantages for traders trading spot currencies is the margin rate or leverage that clients are given. In spot currency trading customers receive one low margin rate for trades done 24 hours a day. In currency futures trading the client has one margin rate for "day" trades and one margin rate for "overnight" positions. This can become a hassle for traders and decreases the overall tradability of the currency futures markets. Margin rates in spot currency trading vary from around 1% to 5% depending on the size of transactions a particular trader initiates.
Since the Forex market, in a sense, "follows the sun" around the globe the market rarely experiences periods of illiquidity. What this means is that any trader in any time zone can trade Forex at any time during the day or night! You no longer have to wait for the market to open when news has already hit the streets or have to stop trading because the CME, CBOT or other American futures pits have closed for the day. This gives the Forex trader added flexibility and continuous market opportunities that just aren't available in futures. To explain the global effect on the Forex market, there are three main economic zones that are linked throughout the world. For instance, when the Pacific Rim markets such as Japan and Singapore begin to slow, the European markets of England, Switzerland and Germany begin, followed by the North American markets of the United States, Canada and Mexico. As the North American markets begin to slow down for the evening, the Pacific Rim starts their trading day. This example shows that you are no longer limited to trading the comparatively short trading day offered by US markets alone.
Forex vs Futures Trading is continued on the next page, so please click here.