Forex vs. Futures
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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.
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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
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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.
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