Why Trade Forex: Forex vs. Futures

 

Mar 13,  · With the U.S. dollar in the doldrums, more and more traders are getting fired up about forex and currency futures. However, there are numerous questions to answer before venturing into either of.

So what does this mean?

FOREX vs. Futures

Forex is the largest financial market in the world. The average traded volume exceeds $ trillion per day and includes all the currencies in the world. Since there is no central marketplace for the currency exchange, all trades are conducted “over the counter.”.

However, it is important to note that most participants in the futures markets are speculators who usually close out their positions before the date of settlement and, therefore, most contracts do not tend to last until the date of delivery. What is the difference between trading currency futures and spot FX? By Matt Lee Updated March 28, — The forward rate is the settlement price of a forward contract, while the spot rate is the settlement price of a spot contract.

Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will In the forex FX market, rollover is defined as the process of extending the settlement date of an open position by rolling The forex market allows individuals to trade on nearly all of the currencies in the world.

However, most of the trading is The spot, futures and option currency markets can be traded together for maximum downside protection and profit. Examining open interest on currency futures can help you confirm the strength of a trend in forex market sentiment.

The forex market has a lot of unique attributes that may come as a surprise for new traders. Learn more about who trades foreign currencies and why. Every currency has specific features that affect its underlying value and price movements in the forex market. With Electronic Communications Brokers becoming more popular and prevalent over the past couple of years, there is the chance that a broker may require you to pay commissions.

But really, the commission fees are peanuts compared to what you pay in the futures market. The competition among spot forex brokers is so fierce that you will most likely get the best quotes and very low transaction costs. When trading forex, you get rapid execution and price certainty under normal market conditions. In contrast, the futures and equities markets do not offer price certainty or instant trade execution. Even with the advent of electronic trading and limited guarantees of execution speed, the prices for fills for futures and equities on market orders are far from certain.

The prices quoted by brokers often represent the LAST trade, not necessarily the price for which the contract will be filled. Traders must have position limits for the purpose of risk management. Risk is minimized in the spot forex market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the available trading capital in your account.

During normal market conditions, all open positions will be closed immediately during fast market conditions, your position could be closed beyond your stop loss level.