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Forex VS Futures

Published by Usman Ahmed, MBA (Researcher)

Reviewed by Bowen Khong, ACCA

While comparing the forex with futures trading, the forex market has a certain edge. Multiple factors such as liquidity, trading fees, market accessibility, and price certainty make forex trading a better option. Not to mention, risk exposure is also one of the critical factors why traders prefer to trade forex. In this piece, I’ll briefly discuss each of the listed factors to help you select your desired market.

Liquidity

Forex

With a daily trading turnover of more than $6.6 Trillion, the forex market is the world’s most liquid market. Increased liquidity enables traders to liquidate their positions instantly. Also, stop orders execution with little to no slippage is an added advantage of the forex market. However, extreme volatile conditions remain an exception. 

Futures

On the other hand, the futures market daily trading turnover is not more than $30 Billion. For sure, the futures market is less liquid. As a result, traders may need to wait longer to fill their orders. 

Market accessibility 

Forex

The forex market remains accessible round the clock following three trading sessions, including Sydney, Tokyo, London, and New York sessions. The currency trading begins with the Sydney session at 5:00 PM EST on Sunday.

On the other hand, the Tokyo market opens at 7:00 PM EST, followed by the London market session that opens around 3:00 AM EST. Lastly, the New York session opens around 8:00 AM EST and lasts up to 5:00 PM EST. 

Not to mention, the Sydney session starts again before the New York session ends. Therefore, traders have great flexibility to find profitable trading opportunities in the forex market at their convenience. 

Futures

While different types of futures are best to trade in specific hours, the majority of futures contracts can be executed between Sunday – 6:00 PM EST and Friday – 4:30 PM EST. However, the futures trading is paused for 30 minutes to an hour on each trading day. Therefore, any significant release during the pause timing restricts traders from reacting immediately. 

For instance, if a piece of major economic news is released in Japan or U.K. while the U.S. Futures market is closed, trading positions on a coming day could be a tough call. 

Trading cost

Forex

Forex trading involves low trading costs. This is because traders are moSo, firstly charged for spreads only. However, sometimes brokers may ask you to pay commission on your forex positions. Usually, this is more common with electronic brokers. 

Futures

However, futures trading comes with both exchange and regulatory fees. While the cost for trading each future contract can vary between $1 to $3, the regulatory prices firstly of the National Futures Association are $0.20 per futures contract. 

Overall, the cost of forex trading is way lower than the fees you pay for trading futures. Also, holding overnight positions in futures trading can have a significant impact on your overall profits. 

Price certainty

Forex 

Forex trades are instantly executed at a trader’s desired prices under normal market conditions. However, slippage can create a difference in a highly volatile market. 

Futures 

You can’t expect instant trade execution with price certainty while trading futures. Even after the inception of technology, instant order filling in the future markets is rare. 

Limited risk exposure

Forex

Even though forex trading is a high-risk investment opportunity, it is still less risky than futures trading. While trading currencies, your positions get closed automatically if the margin amount exceeds your available trading capital. Sometimes positions are closed even beyond the stop order but under an extremely fast market. 

Futures

In futures trading, your positions might close after incurring a loss more significant than your available capital. As a result, the account deficit will become your liability.

Final Words 

Both forex and futures markets can help you generate healthy returns. However, the factors listed above should be carefully analyzed before getting started with either of the markets.  

Usman Ahmed, MBA (Researcher)
Usman Ahmed, MBA (Researcher)
Usman Ahmed is a currency trader and financial market analyst with more than 7 years of active trading experience. Besides holding a Masters degree in Business Administration, he has worked for some of the most renewed companies in the forex industry including FXCM, IQOption, MetaQuotes, Alpari, FXStreet, DailyFX and several others. Usman possesses strong technical analytical skills and is famous for his very own, informative and entertaining, writing style. He believes in naked chart trading analysis that is commonly known as price action trading. He follows global financial news and macro-economic events very closely.
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