Forex Vs Futures

The global foreign exchange market is the largest, most active market in the world. Trading in the foreign exchange markets takes place nearly round the clock with over $1 trillion changing hands every day. It is the main event.

The benefits of foreign exchange over currency futures trading are considerable. The dissimilarities between the two instruments range from philosophical realities such as the history of each, their target audience, and their relevance in the modern foreign exchange markets, to more tangible issues such as transactions fees, margin requirements, access to liquidity, ease of use and the technical and educational support offered by providers of each service.

These differences are outlined below:

At $3 Trillion dollars per day, Forex is the most traded market in the world.
FX markets offer tighter bid to offer spreads than currency futures markets.
FX markets offer higher leverage and lower margin rates.
FX markets utilize easily understood and universally used terms and price quotes.
FX trades executed through FOREXTE are commission free. ( We are compensated through the bid/ask spread. )
Changes In Contrast

At $3 Trillion dollars per day, foreign exchange is the most traded market in the world.

The sheer volume of foreign exchange helps to facilitates price stability in most market conditions. What's more, almost 85% of all currency transactions involve the 7 major currency pairs.

Forex markets offer tighter bid to offer spreads than currency futures markets.

By inverting the futures price to compare it to cash, you can readily see that in the USD/CHF example inverting the current futures dealing price of .5894 - .5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip spread available in the cash markets.

Forex markets offer higher leverage and lower margin rates than those found in currency futures trading.

When trading currency futures, traders have one margin rate for "day" trades and another for "overnight" positions. These margin rates can vary depending on transaction size. Currency trading gives the customer one rate all the time, day and night.

With more buying power, you can increase your total return on investment with less cash outlay. Of course, increasing leverage increases risk. With $1,000 cash in a margin account that allows 200:1 leverage (.5%), you can trade up to $200,000 in notional value.

Forex markets utilize easily understood and universally used terms and price quotes.

Currency futures quotes are inversions of the cash price. For example, if the cash price for USD/CHF is 1.7100/1.7105, the futures equivalent is .5894/ .5897; a methodology followed only in the confines of commodity trading.

Currency commodity prices have the added complication of including a forward foreign exchange component that takes into account a time factor, interest rates and the interest differentials between various currencies. The foreign exchange markets require no such adjustments, mathematical manipulation or consideration for the interest rate component of commodity contracts.

Forex trades executed through FOREXTE are commission free.

FOREXTE is compensated through the bid/ask spread. Whereas currency commodity have the added baggage of trading commissions, exchange fees and clearing fees. These fees can add up quickly and seriously eat into a trader's profits. Currency commodities have the added baggage of trading commissions, exchange fees and clearing fees. These fees can add up quickly and seriously eat into a trader's profits.

Forexte.com is compensated through the bid/ask spread.

Changes in contrast

In contrast, currency commodities are a small part of a much larger market; one that has undergone historical changes over the last decade.

Currency commodity contracts (called IMM contracts or international monetary market commodities) were created at the Chicago Mercantile Exchange in 1972.
These contracts were created for the market professionals, who at that time, accounted for 99% of the volume generated in the currency markets.
While some intrepid individuals did speculate in currency futures, highly trained specialists dominated the pits.
Rather than becoming a hub for global currency transactions, currency futures became more of a sideshow (relative to the cash markets) for hedgers and arbitragers on the prowl for small, momentary anomalies between cash and futures currency prices.
In what appears to be a permanent rather than cyclical change, fewer and fewer of these arbitrage windows are opening these days. And, when they do, they are immediately slammed shut by a swarm of professional dealers.

These changes have significantly reduced the number of currency futures professionals, closed the window further on foreign exchange vs. futures arbitrage opportunities and so far, have paved the way to more orderly markets. And while a more level playing field is poison to the P&L of a currency futures trader, it's been the pathway out of the maze for individuals trading in the foreign exchange markets.