Forex vs. Futures
Being the largest financial market in the world, Foreign Exchange market deals
in the business of trading of the world's various currencies, with more than
$1.5 trillion changing hands every day. Futures, on the other hand, deals in
contracts to buy or sell a foreign currency on a specific date in the future,
the price for which is set today.
In other words, futures are the same as forward exchange deals, which are tailor
made to the customer requirements and needs for the amount of funds and due date
of deal.
There are plenty benefits of Forex over currency futures trading, especially
with the difference between the two regarding their target audience,
transactions fees and liquidity, as given below:
24-Hour Market
Currency market is a 24-hour market, unlike most of the futures exchanges,
allowing its traders to react to the immediate news happenings by trading
immediately. This facility cannot be availed with the futures market which only
operates during business hours and not for 24 hours a day.
Superior liquidity
Forex markets hold unmatched liquidity as compared to currency futures.
Especially with $1.5 trillion changing hands daily, Forex is the largest and
most liquid market in the world. It can absorb a large trading volume and the
transaction sizes are huge too, in comparison to any other market. Futures
market, on the other hand, is a $30 billion market per day which provides only
limited liquidity with a lesser trading volume.
Forex uses simple and easy price quotes
While the currency futures trading and price quotes have added complications of
time factor and interest rates between various currencies, the Forex markets
require no such adjustments of future calculations and consideration for the
interest rate of future deals.
Forex trading is commission free
Futures trading contracts get along with them, trading costs, exchange fees and
clearance fees which eat up most of the trader's profits. But this is not the
case with Forex trading because here, the trader deals directly with the market
through online exchange, thus saving the brokerage fees. Although, there is
always an initiating cost to any trading being done, which is revealed in the
bid/ask spread, present in all types of trading, be it Forex, Futures or
Equities.
High execution quality and speed
It is only with Forex trading that a trader can experience high execution
quality and speed because of its high trading ratio as compared to any other
market. The reason why futures market does not offer rapid execution or price is
due to the lesser volume of trading and liquidity and definitely due to
uncertainty during normal market conditions, as the trading prices on market
orders is far from certain. Read as to what makes the Forex currency to move.
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