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, $4
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 except in 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 currency contracts exist, but they are thinly
traded, not very liquid, and are difficult for the average investor to access.)
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 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
|
