Forex vs. Futures

Since the foreign exchange market is the largest market in the world, it easily eclipses the smaller futures market. The smoother trends and massive liquidity you’ll find in forex will reduce the volatility, gaps, and sharp spikes that are more common in markets that have a lower volume of trading, such as the futures market. And while traders can do well trading the futures market, here are some of the advantages forex has over futures.


Forex provides better liquidity than futures.

When you need to place an order quickly, the liquidity of the market is certainly one of the major factors that will affect how close you get to your price objective. The forex market is currently trading on a daily basis almost 50 times as much as all the futures markets combined, which means you can execute your orders quickly with minimal slippage.


Faster execution of orders at set prices.

It used to be that in the futures market, all the trades were made in an open outcry system, and in some exchanges this is still the case. You would call your broker to place a trade order, he would then run to the pit and literally yell it out for someone else in the pit to take your order. All this took time, while prices were changing. Now though, the futures market is becoming more electronically traded which is allowing for faster execution of orders, but it still has a way to go to catch up with the speed of executing an order in the purely electronic world of the forex market. Even still in the futures market, the price quoted by exchanges is the last traded price, not neccessarily the price at which the order will be filled.


You won’t be liable for a debit balance.

When you’re trading through a reputable forex broker, you should not be liable for a debit balance under normal market conditions. Most brokers will make sure that instead of having a margin call where you’ll need to add more funds to your account, all your positions will be automatically closed by their system. This can give you peace of mind knowing that you won’t lose more than you put into your account. Without this, if a trade goes against you, and wipes out all the funds in your account, and continues to remain an active trade that’s going against you, you would be liable to pay not only everything you already lost in your account, but the additional deficit that had been allowed to build up. This is why it’s very important to make sure any forex broker you’re going to do business with, will never allow you to have a deficit on your account. This is not always the case when trading through a futures exchange, and it’s how people’s entire assets have been wiped out in nearly an instant.


Forex offers higher leverage and lower margins than futures.

The enormous size of the forex market, in addition to better price stability, allows you to trade with more leverage (up to 400:1) than is common in the futures market. And in forex you can also choose how much leverage you want to use during your trading. In the futures market you have two separate margin rates for trading during the day, and another one for overnight positions, rates which can change depending on the size of your transaction. As a forex trader you will receive the same margin rate no matter what time of day you’re trading.


Forex can easily be traded 24 hours a day, unlike the futures market.

You can trade forex 24 hours a day from 5pm EST on Sunday until 5pm EST on Friday, which is not the case with the futures market. You can buy or sell curencies as market conditions change according to either fundamental or technical data, any time, day or night. Unlike with futures, you don’t have to wait until the market opens in the morning before your trades are executed. It is possible to trade futures contracts overnight, but they’re not very actively traded during that time, and the liquidity is not very sufficient.


There are no commissions as there are in futures, with forex you pay only the bid/ask spread.

In futures trading there are exchange fees, clearing fees, and commissions that can all eat into your profits. In the forex market, when you trade directly with a market maker, the one main fee you will have to pay is the bid/ask spread. If you’re holding trades overnight, you could also pay or get paid a small amount of interest on those rollovers depending on the interest rate between the two currencies you’re trading. For example, if you’ve gone long a currency with the higher interest rate of the pair, you can actually gain on the rollover, or you could have to pay interest if the opposite is true.


There are no restrictions on maximum trade sizes with forex, as there are in futures.

Both futures and forex can have minimum required trade sizes, but when trading futures, there are maximum lot sizes you are allowed to trade at any one time, in order to prevent anyone from monopolizing the relatively smaller futures market. With forex trading though, you can trade as much as you like, as often as you like. You could trade $500,000,000 at one time if you had the capital to do it.