Futures vs Forex

Foreign Exchange, or simply Forex, is where one currency is traded for another currency. Almost everyone is involved in this market, because currency exchange is very common, especially in these times of globalization. Currency traders make up a large part of the Forex market. They try to hypothesize and speculate the exchange rate movements, and take advantage of the rise and fall ‘“ even the small fluctuations – in exchange rates.

Perhaps the best thing about Forex trading, is its very public nature. There is very little, or no, ‘inside information’ in Forex trading. Fluctuations in the exchange rates are easily accessible in the news and media. Anyone can easily obtain reports of monetary flows in real time, and there is no undisclosed information.

In terms of global liquidity, the Forex market is the largest, and the most liquid market. The trading volume is immense, with more than a trillion traded on a daily basis. With Forex, the transaction sizes are so enormous that it dwarfs any other market that exists. However, Forex trading is not conducted on a regulated exchange. Thus, risks are always present with Forex trading. Forex is an over-the-counter and interbank market.

The Forex market is always open 24/7, between individuals and their brokers, brokers and banks, and banks with other banks. There are always open sessions, since the European, Asian, and US sessions open and close at different times. The market is continuous and seamless, which allows traders to react to any news breaks. Traders can make instantaneous transactions based on their judgment.

Futures exchange, or simply Futures, is a financial exchange where people trade standardized futures contracts. Such contracts oblige the buyer or the seller of an asset to purchase or sell, respectively, at a predetermined forthcoming date and price. Deliveries are set at a specified time in the future, however, some are settled in cash.

In futures, traders speculate on the price movement of the underlying asset. Individuals will then take action based on their conjectures. The Futures market is not as liquid as the Forex market, as it trades only billions per day. One reason for this relatively small liquidity, is because Futures is traded on an exchange with central counter party clearing. It is not ‘over-the-counter’.

Since money is the root of all pricing, and is the basis of all trading, it is often natural for a Futures trader to transition into Forex trading. The trending nature of Forex appeals to different kinds of traders ‘“ technical and fundamental. Futures do not provide as much advantage to small traders, as in the case of Forex.

Futures trading, on the downside, has commissions. Besides trading costs, there are ticket costs and middleman fees. Forex also has costs, but they are reflected in the bid/ask spread, instead of the commissions contrasting the Futures market, where brokers are paid via commission. Additionally, Futures offers less price certainty, because instant trade execution is not possible in the market. The lastest trade prices are offered, but the element of tick prices, makes the prices far from certain.

Summary:

1. Forex is the trading of currencies, while Futures is the trading of futures contracts of commodity and assets.

2. Forex is the most liquid market in the world, trading trillions daily. Futures only reaches billions per day.

3. Forex is seemingly a 24/7 open market, and it is also instant. Futures is not as easy to access.

4. Forex trading can be achieved ‘over-the-counter’, while Futures is traded on an exchange with central counter party clearing.

5. Futures trading may have commissions, unlike Forex trading.

6. Futures do not provide as much advantage to small traders, as in the case of Forex.

7. Futures provide less certain prices, while Forex is often certain, and on the spot.

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