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Forex vs. Futures

Foreign Exchange Trading

Futures Trading

Typical Margin

400: 1

15:1

Liquidity

Daily Volume: $2 Trillion

Limited Liquidity

Commissions

No Commissions

Commissions and Exchange Fees

Trading Hours

24 Hour Active Market

7 Hours with
Limited After Hours

The benefits of spot Forex (cash market) over futures and more specifically currency futures trading are considerable. The dissimilarities between these investment vehicles range from philosophical - such as the history of each, their target audience, and their relevance in the modern Forex markets, to more tangible issues such as transactions fees, margin requirements, liquidity level, and the technical and educational support offered by providers of each service. A closer look at these differences are outlined below:

  • Higher Volume = Better Liquidity. The daily currency futures volume on the Chicago Mercantile Exchange (CME) is a mere 1% of what Forex market investors experience every day. This unmatch volume and liquidity is one of many advantages that the Forex markets have over currency futures.

  • Tighter Bid/Offer Spreads. Forex offers mostly 3-5 pip spreads versus a possible 8 pip spread in the currency futures market.

  • Higher Leverage - Lower Margin Requirements. Forex offers up to 400:1 leverage with as low as 0.25% margin, compared to a typical currency futures leverage of 15:1

  • Easy to Read Price Quotes. Currency futures quotes are inversions of the cash price. For example, if the cash price for USD/CHF is 1.7100/1.7105, the futures equivalent is .5894/ .5897 (a format only familiar to future's traders).

    Currency futures' prices also have the added complication a forward Forex component that takes into account a time factor, interest rates and the interest differentials between various currencies which are not necessary in the Forex Market.

*Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent
financial advisor if you have any doubts.

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