Fair And Regulated Markets

Futures markets and brokers are highly regulated, with all transactions generally consolidated at one exchange. The advantage of a centralized exchange is that orders are matched and guaranteed to be settled. There's also full transparency to contract pricing and volume, allowing large and small traders to compete on a level playing field.

Alternatively, there's no centralized exchange for spot FX transactions as they're fragmented across various unrelated forex dealers often with little or no price and volume cross-reporting. These trades often occur on a broker’s dealing desk with no counterparty guarantees.

Consistent Cost To Trade

In the forex futures market, traders generally pay a commission per contract, but often the true cost of the trade is expressed in the bid/ask spread, which is set by supply and demand and the available liquidity. Most forex futures markets have good liquidity and consistently tight spreads, enabling traders to enter and exit trades efficiently and cost-effectively.

With spot FX, the bid/ask spread is often set by a broker and is used to help manage the broker’s risk and drive overall profitability. A spot FX broker can take the other side of a trade, transition it to a wholesale pool, and lock in a profit. This is why spot FX traders often start a trade with a negative P&L. Additional fees for spot FX can include per-trade commission and overnight interest rate carrying costs.

Diversification

Why limit what you can trade? While spot FX traders are often limited to trading one currency against another, futures trading offers a wider range of products to diversify and capture unique market opportunities. With futures, you can trade major market indexes, interest rates, gold and silver, crude oil and natural gas, agricultural products, and currencies.