Everyone seems to know what the stock market is, but you may have also heard about futures. One might consider that forex sounds good, but think, “Maybe I should explore futures first, and see if it’s a better fit for me”. Of course, while this might be a possibility, the truth is that forex is very much a better market to trade than futures. There are several reasons for this.
Size and liquidity
First and foremost, as described before, the forex market simply dwarfs every other market when it comes to liquidity and pure money flow. The futures market trades $30 billion a day, which is certainly substantial, compared to many small countries, for example. However, compared to the forex market – it’s nothing! Remember that the forex market is in the TRILLIONS, not billions. In this manner, in terms of liquidity, and large amounts of money exchanging hands without the price being affected – the forex market wins.
Secondly, the futures market is limited time-wise! Of course, we all know that it’s impossible to trade 24/7. Traders have to eat and sleep to stay physically and mentally sane. However, there certainly is something comforting in knowing that if you are a good trader, you can take any time of the day or night to spot a particular opportunity to pounce on! The futures market simply doesn’t allow for this kind of flexibility. For a truly seamless market, that isn’t limited by exchanges – the forex market also has a clear leg up here, as well. It should be noted that while overnight futures have been introduced, the liquidity isn’t quite attractive to many investors.
Thirdly, it’s about adapting! Now, you might not be the kind of person who wants to trade 24/7. This certainly is understandable. We all have our own personal lives and families to tend to, and it’s hard to socialize with friends when you are constantly looking at your phone trying to determine the markets. As we all know, money isn’t everything. But can you think of another reason why the 24/7 market might be an advantage? Think about it, very deeply. In a modern world where countries and alliances shift so quickly, one statement from a country leader, one military exercise, or even one tweet – can truly alter the way that currencies are because they are, after all, a reflection of a global market. If you see news that can affect your money, you can IMMEDIATELY adjust by buying or selling on the forex market! However, on te futures market- you guessed it, you have to wait for exchanges to open. This means that by the time you can actually sell the currency that is clearly bleeding out, because of the news that came out last night, you might be taking a big loss, even though you found out about the news before most other people! In this way, forex markets truly reward the informed investor, that can adjust quickly.
Fourth is about risk. Now, we all would love to think that we are going to enter a market, learn it quickly, and get rich! Of course, this is ideal. However, what many people don’t point out is that sometimes it’s not about taking profits on a play, it’s about knowing when to protect your money from downside! Any seasoned investor will tell you that actually protecting your wealth is just as important as finding the right profitable moves. When it comes to futures, you can actually be liquidated at a big loss, which could leave you in the red. This might require you accessing your personal funds to cover your loss, which of course, no one wants to do. The good thing about the spot forex market is that the margin call will automatically be generated if necessary, so you don’t have to worry about taking a loss that you didn’t expect, and you get to risk exactly what you wanted to risk. While it may sound like a little fact, many will tell you that this can make all the difference, because no one wants to “blow up” their account. It is certainly possible in the futures market, however.
Fifth, commissions! It is always unfortunate to buy or sell and to have to pay that little extra amount, even if it is small. It all truly adds up, and the forex market really goes above and beyond to ensure that the commissions are minimal to nonexistent.
Lastly, the price certainty when it comes to the forex market is not even comparable to the futures market, where the trade may not be executed nearly as quickly, and you might not get the price that you had hoped for. This might sound small, but can lead to big differences in profit and loss that can truly affect your wealth.
Comparing ADVANTAGES: FOREX vs. FUTURES
24-Hour Trading: YES
Minimal or no Commission: YES
High Leverage: YES
Price Certainty: YES
Guaranteed Limited Risk: YES
24-Hour Trading: No Minimal or no Commission: No High Leverage: No Price Certainty: No Guaranteed Limited Risk: No