Futures Vs Forex

Billions have been made investing in both futures and Forex – but which one suits your investing style?

Before we delve into the hotly debated topic of which is better, futures or Forex, let’s take a look at the key differences between these two investment options. Put simply, investing in the futures market is quite similar to investing in the stock market, except that your trade purchases a right to buy or a right to sell specific stocks or commodities at certain prices. These prices are called the “strike price,” and generally rise as the length of your contract increases. To put this into perspective, imagine buying a “corn” contract on the futures market for $50 per ton. You are betting that the price of corn will increase to more than $50 per ton in the near future. If this never happens, you have simply wasted the money that it took to purchase the contract, but if the price of corn does exceed $50 you can sell your contract and turn a profit. Simply deduct the commissions and prices paid for the original contract and you’ll recognise your net profit. Most investors in the futures markets select commodities rather than stocks, as stock futures are generally referred to as “options” – although for the most part they operate in a similar manner.

Defining Forex is quite simple. A trader will select two specific currencies and attempt to earn a profit based on swapping these currencies at opportune times. For instance, a trader might assume that the value of the Euro will improve in the short term over the value of the US Dollar. By using a regulated Forex trading house, as well as a host of sophisticated software and support tools, the trader can complete this currency swap with the intention of earning a profit. This is obviously an oversimplification of the currency markets, but the basic transaction is actually fairly straightforward. Looking at both futures and Forex, which option makes more sense for the average investor, and which one will provide you with the quickest and safest return on your investment? Going forward we will define the pros and cons of both the futures market and trading in Forex.

7 or 24 hour marketplace? Here is one area where other investment opportunities find it quite difficult to compete with the Forex marketplace. From Monday to Friday, currency traders have around-the-clock access to a network of other traders who can facilitate currency swaps. No matter where you are in the world during the standard working week, you’ll find access to a 24 hour marketplace that provides seamless access to trading and an easy ability to react quickly to global market indicators. This contrasts sharply with the futures market, which relies on the opening and closing bells of the stock exchange to bookend the trading day. If important news comes in from Japan, Europe, or virtually anywhere around the globe while the US futures market is closed, the next morning may present market volatility for futures traders. In contrast, Forex traders have the ability to react immediately to any global events that may cause a shift in currency value.

Liquidity: To cut to the chase, the Forex market is the largest and most liquid marketplace in the world. Able to absorb significant trading volume and massive transaction sizes with ease, more than $5.3 trillion is traded on a daily basis by those looking to make a profit on currency swaps. While the size of the market isn’t always an indicator of its profit potential, the futures market simply does not have the potential to compete with Forex when it comes to liquidity. To the trader, this means that currency positions can be liquidated and stop orders completed without much concern for slippage (with the exception of trading within severely volatile markets).

Commission structure: The Forex market does not work within a specifically regulated and centralised marketplace. This means that Forex trades do not require the use of a broker who will demand commission in exchange for his/her services. When trading in futures, commissions and other related fees are simply part of the course, and must be considered when creating a financial plan based on your investments. Brokerages and trading firms who support and facilitate Forex trades earn their money in several ways, with slight premiums on the currency valuation being the cost that most closely aligns with a traditional broker’s commission.

Minimal risk: While there is always going to be some level of risk within any investment opportunity, the process of investing in currencies through a reputable trading firm automatically provides some risk mitigation in the form of position limits. A position limit is a number that is established relative to the amount of money in a trader’s account. Online trading platforms will automatically create a margin call if the predetermined margin exceeds the amount of trading capital within the related account – thereby minimising losses and protecting your investment. When investing in futures, you may be liable for significant deficits if the position is liquidated at a loss that is larger than what you had in your related account.

Leverage: Though the concept of leverage can be both a good thing and a bad thing, having access to high leverage positions can enable you to make serious profits with a minimal upfront investment. Forex traders often allow up to a 500 to 1 leverage ratio, though most new traders should start with a much lower ratio to hedge against the potential for losses.

The Verdict?

As in most things, there is no one winner when it comes to determining which is better – Forex or futures. If you enjoy participating in an investment that rewards quick thinking, market awareness, and continual learning, then the Forex option is likely for you. If a “purchase and hold” scenario sounds more appealing to your investment style, consider investing in futures. Again, there is no right or wrong answer, but consider your level of risk tolerance, your appetite for profitability, how involved you want to be in your investments, and the fees that you are willing to pay for your investment, and you’ll discover the answer on your own. From a market trade volume viewpoint only, Forex drives more than 150 times the daily trade volume compared to futures – possibly the greatest indicator of the difference in potential for profits between these two investment opportunities.

Begin trading today! Create an account by completing our form

Privacy Notice

At One Financial Markets we are committed to safeguarding your privacy.

Please see our Privacy Policy for details about what information is collected from you and why it is collected. We do not sell your information or use it other than as described in the Policy.

Please note that it is in our legitimate business interest to send you certain marketing emails from time to time. However, if you would prefer not to receive these you can opt-out by ticking the box below.

Alternatively, you can use the unsubscribe link at the bottom of the Demo account confirmation email or any subsequent emails we send.

By completing the form and downloading the platform you agree with the use of your personal information as detailed in the Policy.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Back to top

Office network

One Financial Markets is the trading name of Axi Financial Services (UK) Ltd, a company registered in England with company number 6050593. Axi Financial Services (UK) Ltd is authorised and regulated by the Financial Conduct Authority in the UK (under firm reference number 466201) and the Financial Sector Conduct Authority in South Africa (with FSP number 45784).

The information on this site is not directed at residents of the United States, Belgium, Poland or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

www.onefinancialmarkets.com is owned and operated by Axi Financial Services (UK) Ltd.

Award winning broker
We have been presented with a number of awards that recognise the quality of our service and dedication to our clients :

Best FSA Regulated Broker
Saudi Money Expo

Best Education Product
Saudi Money Expo

Best Broker - Online Trading
IAIR Awards

Best Institutional Broker
Saudi Money Expo

Best FX Services Broker
CN Forex

Top International
FX Broker 2015

Saudi Money Expo

Broker of the Year
Online Trading – Middle East

IAIR Awards

Best Forex
Customer Service 2018

JFEX Awards

We accept the following payment methods: