The difference between the Forex Market and Currency Futures

The difference between the Forex Market and Currency Futures

Technology is shaping the world, and largely so, the financial markets have had a more significant share of it.

Nowadays, if you’re looking to invest, you need to dig deeper into some research and come out with the best trading vehicle.

Forex market

There’s a wide range of options, but the most suitable and alluring opportunities are between the futures and forex markets.

However, all you need is first to understand what each of them entails and have a clear mind on their potential.

So, how do they differ?

The Forex Market

Due to differences in the exchange rates over the years, it gave rise to foreign exchange markets whereby traders speculate on changes in currency values or can as well hedge against the possibility of the depreciation of a currency.

Over the years, forex trading has grown in popularity, attracting a lot of folks. Forex trading got a boost in the 90s when retail forex traders got access to the market.

The Tricks in Forex Trading

A lot has indeed changed in forex, initially, when buying or selling currency, one had to direct a currency exchange operator or simply a major international bank.

However, as things stand, a trader only needs to open an account via a forex broker.

In forex, the currencies are usually traded in pairs, which means that when a trader buys one, simultaneously, it will be selling another.

Buying and selling of currencies can be done across the world. The currencies are directly traded and not I contracts, and “lot” is the term used in describing the minimum amount traded.

Also, in forex trading, the profit and loss are determined by the margin, dictating that any losses or gains can be higher than a trader’s initial investment.

Moreover, the forex markets operate 24 hours a day without closing; hence, the options/stocks in the forex can’t be manipulated. It’s also the most liquid market and, therefore, the desired destination for investors.

In terms of the commission fees, forex is much better as you only pay peanuts as compared to what you would pay in futures.

When buying and selling currency, the pairs don’t have to include the currency in the main forex account, for instance, a trader holding a GBP account can buy USD at the same time selling EUR.

Futures

 

Forex market

Futures are merely a trading instrument, which means that their value is based on that of another asset, the underlying asset.

Unlike forex that is traded directly, futures are traded via contracts whose price is determined as per an estimated future value of an underlying asset.

Their origin from the commodities market, but now they can be traded for a plethora of assets, including bonds, commodities, currencies, and equities.

How Futures Work

Futures are bought and sold by contract, which can expire and are generally scheduled for expirations about four times or more per year.

After purchasing, the contracts can as well be bought as sold on the secondary market.

In the past, futures would be bought and sold and then delivered except some physical deliveries on particular commodities-related contracts.

Forex Futures

You don’t have to be surprised, yes, forex futures. Like other underlying assets, futures also can trade forex.

Like most futures, forex futures trading includes two parties that enter a contract trading one currency for the other for a special price on a specified future date.

The prices are arrived at by considering the carrying costs for borrowing as well as the purchase of the currency in question as well as possible investment earnings.

The Bottom Line

Depending on your financial trading goals, trading forex or the futures can come in handy.

The significant aspect is to define the one you’re comfortable with. For instance, forex trading is accessible and requires a small capital with limited exposure to long-term risks.

Furthermore, you can decide to use both trades simultaneously to multiply your output, but it requires a high level of experience.