Why Trade Forex: Forex vs. Futures
It’s not just the stock market. The forex market also boasts of a
bunch of advantages over the futures market, similar to its advantages
over stocks.
But wait, there’s more… So much more!
Liquidity
In the forex market, $5.3 trillion is traded daily, making it the largest and most liquid market in the world.
This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market.
The futures market trades a puny $30 billion per day. Thirty billion? Peanuts!
The futures markets can’t compete with its relatively limited liquidity.
The forex market is always liquid, meaning positions can be
liquidated and stop orders executed with little or no slippage, with
exception to extremely volatile market conditions.
24-Hour Market
At 5:00 pm EST Sunday, trading begins as markets open in Sydney.
At 7:00 pm EST the Tokyo market opens, followed by London at 3:00 am EST.
And finally, New York opens at 8:00 am EST and closes at 4:00 p.m. EST.
Before New York trading closes, the Sydney market is back open – it’s a 24-hour seamless market!
As a trader, this allows you to react to favorable or unfavorable news by trading immediately.
If important data comes in from the United Kingdom or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride.
Overnight markets in futures contracts do exist, and while liquidity
is improving, they are still thinly traded relative to the spot forex
market.
Minimal or no commissions
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.
Price Certainty
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.
Guaranteed Limited Risk
Traders must have position limits for the purpose of risk management.
This number is set relative to the money in a trader’s account.
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).
In the futures market, your position may be liquidated at a loss
bigger than what you had in your account, and you will be liable for any
resulting deficit in the account. That sucks.
| Advantages | Forex | Futures |
|---|---|---|
| 24-Hour Trading | YES | No |
| Minimal or no Commission | YES | No |
| Up to 500:1 Leverage | YES | No |
| Price Certainty | YES | No |
| Guaranteed Limited Risk | YES | No |
Judging by the Forex vs. Futures Scorecard, Mr. Forex looks UNBEATABLE! Now meet the winners who trade the forex market.
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