Futures vs Forex: 4 Reasons to Trade Currency Futures over Forex

By NinjaTrader


The critical difference between currency futures and spot forex is the assets themselves.

What is the Difference between Futures vs Forex

With forex, you trade one currency for another. With futures, you trade derivative financial contracts at a predetermined future date and price.

Why Trade Currency Futures vs Forex?

When compared with spot forex, futures trading offers considerable advantages for traders. From the security of trading on a regulated exchange to the absence of hidden fees, here are 4 reasons why currency futures are preferred by many traders over forex.

Up Front Pricing

When trading traditional spot forex, variable spreads make pricing uncertain and the transaction cost can vary with every trade. Additionally, the “cost of carry” associated with forex trading means traders can incur interest charges for holding positions overnight. The combination of these factors makes the costs associated with forex trading rather unclear.

Conversely, when trading futures all transaction costs are fixed and upfront. In other words, the cost of doing business is known from the beginning. There are also no additional charges for holding futures positions overnight.

Transparent & Level Playing Field

Since there is no centralized exchange in forex trading, there is limited market transparency. Additionally, although forex is an electronic market, orders are often handled by a “dealing desk.” With a middle man in place processing the forex orders, there are inherent challenges ensuring a fair marketplace for all participants.

Meanwhile, all futures trades are traded and cleared via a centralized exchange. For example, all E-mini trades are cleared through the Chicago Mercantile Exchange (CME). This means all trades are posted publicly in real-time, including detailed time & sales information.

Futures markets also operate by the FIFO rule – first in first out. This ensures a level playing field for all futures traders. Both institutional investors and individual traders receive the same treatment in terms of order execution.

Accurate Volume Data for Use in Trading Decisions

Volume is an important factor to consider when speculating markets. Many technical traders monitor volume to determine when conditions are right to put on a trade or exit the market.

With forex markets, the absence of a centralized exchange means accurate volume information is simply unavailable. Traders might be able to access volume data from one forex exchange but this will not reflect volume from all forex exchanges.

As futures markets are centralized, volume data is universal for all futures traders. Volume is also critical for technical analysis, and many technical indicators such as Volume Profile utilize volume data.

Diversification Across Sectors

While Forex traders are limited to trading one currency for another, futures allow traders to invest across a number of sectors. From equity indices, metals, and agriculture to bonds, energy & commodities, futures allow traders to diversify their opportunities.

For example, a futures trader could simultaneously speculate the S&P 500, gold, & crude oil. Spot forex traders, on the other hand, are limited to the currency market alone.

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