Benzinga readers love FOREX. com for all their trading needs! Both the currency or forex futures market and the spot forex market are used to hedge currency exposure risks and speculate on foreign exchange rates. However, some fundamental differences exist between the two market types that should be considered before trading in either or both markets. futures, then keep reading. In this article, Benzinga outlines the major differences between the two tradable currency markets so you can decide which venue will suit you best.

The spot forex market is the decentralized physical or cash market for currencies. It operates via a global and largely unregulated network of financial institutions and online brokers. A foreign exchange or forex transaction involves the exchange of one currency for another.

Such transactions take place in the forex market, which has the distinction of being the largest and most liquid financial market in the world. Currencies trade in the forex market in pairs. The first currency in a forex quote is the base currency or the currency to be bought or sold. The second currency, known as the quote or counter currency, is the currency that is used to buy or sell the base currency.

The seven major forex currency pairs are:. Currency pairs that do not include the U. dollar vs. When trading in the spot forex market, currencies are physically exchanged on the settlement or value date. A spot forex transaction typically settles within two business days to allow time for bank transfers to take place. To start trading in the forex market requires little effort and no money if you just want to learn how to trade currencies.

Basically, you can open a demo account with almost any online retail forex broker with no obligation and no funds so that you can practice trading forex until you develop a viable trading plan. Forex trading has some notable advantages over other financial markets, as well as some disadvantages. Futures are derivative contracts used for the exchange of physical assets, as well as for hedging and speculation. A futures contract is an agreement to buy or sell an asset at a future date, which is a currency pair in the case of currency futures.

A currency futures contract specifies the exchange rate at which the underlying currency pair is to be exchanged among the counterparties, the date and exact time of its expiration and the quantity of the base currency to be exchanged for counter currency under the contract. Unlike options, where traders can exercise and take delivery of an asset, futures delivery is the responsibility of the seller of the contract. This is the main reason why the vast majority of futures contracts are never delivered upon but are instead offset by the seller buying back the futures contract they sold for the cash gain or loss.

Currency futures trading on the CME involves dealing multiples of specific contract lot sizes standard, e-mini and e-micro expressed in foreign currency on exchange rates that are typically quoted in U. dollars per foreign currency unit for pairs that include the U. dollar is the base currency. Many corporations will establish forex and futures positions to offset the exchange rate risk from doing business abroad. International investors might also use futures to hedge their currency risk.

For example, if a U. Currency futures contracts trade primarily on the Chicago Mercantile Exchange CME and have standardized amounts for each currency.

Transactions are settled in U. You can see the different contract sizes, symbols, expirations, tick values and minimum tick sizes for the CME forex futures contracts in the table below. Trading hours for CME forex futures contracts are from Friday 5.

until p. Central Time CT with a one-hour break each weekday beginning at p. To trade futures contracts, you must deposit a minimum amount of money, known as initial margin, that is set by CME Clearing to secure the broker you use and the exchange against any potential losses you might experience. You also need to remain aware of your maintenance margin amount, which is the sum that must be maintained in your account as long as you have an open position. Trading currency futures has several advantages and disadvantages relative to trading spot forex.

The best option for you will depend on which venue suits your currency trading needs and preferences best. Sudden and sharp exchange rate movements: The currency futures market shows substantial volatility at times just like the underlying spot forex market.

When considering whether to trade currency futures vs. forex as a retail trader, a substantial consideration will be the amount of risk capital you have available to deposit into a margin account. Another key consideration that can help you decide between the currency futures and spot forex market is the minimum position size you intend to trade and how small an amount you will need to adjust your trading positions by.

Currency futures tend to have a larger lot size than spot trades made via online forex brokers, so your minimum transaction size will be higher. A further difference between the currency futures and forex markets is the daily turnover they each see.

Most retail traders will opt to use an online forex broker to trade forex, but if you plan on trading currency options as part of your strategy, then you might prefer to use currency futures.

Currency futures generally have a highly liquid option series that matches the futures delivery date exactly and trades on the same exchange. Very few online forex brokers presently offer currency options to retail traders, although those who can trade in the Interbank market can contact major banks for an OTC currency option quote. Claim Exclusive Offers. CedarFX is not regulated by any major financial agency.

The brokerage is owned by Cedar LLC and based in St. Vincent and the Grenadines. You can trade currency futures on a variety of currency pairs that are also traded in the broader forex market.

Most retail forex traders will find the accessibily, leverage, low initial margin requirement and position-sizing flexibility of trading currencies through online forex brokers more attractive than trading currency futures. The exchange rates quoted in the forex market are largely determined by the forces of supply and demand based on various factors that help determine the relative value of one national currency quoted in terms of another.

Major forex market participants that can sometimes influence the forex market with their transactions include central banks, large financial institutions, hedge funds and multinational corporations. com , registered with the Commodity Futures Trading Commission CFTC , lets you trade a wide range of forex markets plus spot metals with low pricing and fast, quality execution on every trade. Learn more about FOREX.

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Forex Brokers. Futures clearinghouses require a deposit from participants known as a margin. Unlike margin in the stock market, which is a loan from a broker to the client based on the value of their current portfolio, a margin in the futures market refers to the initial amount of money deposited to meet a minimum requirement.

There is no borrowing involved, and this initial margin acts as a form of good faith to ensure both parties involved in a trade will fulfill their side of the obligation.

Furthermore, the futures initial margin requirement is typically lower than the margin required in a stock market. Should an account take on losses after daily mark-to-market, the holders of futures positions must ensure that they maintain their margin levels above a predesignated amount.

known as the maintenance margin. If accrued losses lower the balance of the account to below the maintenance margin requirement, the trader will be given a margin call and must deposit the funds to bring the margin back up to the initial amount. An example of margin requirements for each type of contract can be found on the Chicago Mercantile Exchange, or CME's website here more on the CME, below.

Forex futures are traded at exchanges around the world. One of the most popular exchanges is the Chicago Mercantile Exchange CME Group. Forex, much like most futures contracts, can be traded in an open out-cry system via live traders on a pit floor or entirely through electronic means with a computer and access to the Internet. Open-outcry has mostly been phased out in Europe and replaced with electronic trading.

As mentioned earlier, in terms of the sheer number of derivatives contracts traded, the CME group leads the pack with an average daily volume ADV of The majority of forex futures contracts are traded through the CME Group and its intermediaries. Each futures contract has been standardized by the exchange and has certain characteristics that may differentiate it from another contract.

Of utmost interest to traders, however, would be the minimum price fluctuation, also known as the tick. A tick is unique to each contract, and it is imperative that the trader understands its properties. That means if the Canadian dollar appreciates from. E-minis are ideal for new traders because of their increased liquidity and accessibility due to the lower margin requirements. The contracts trade 23 hours a day, Monday to Friday, around the world. Forex futures are used extensively for both hedging and speculating activity.

Let's briefly examine an example of using FX futures to mitigate currency risk. As with the equities market, the types of trading method are dependent upon the unique preferences of the individual when it comes to both techniques and time frames.

Day traders generally never hold positions overnight and can be in and out of a trade within a matter of minutes seeking to jump on an intraday swing. is centered around price and volume action with a heavy emphasis on technical analysis as opposed to fundamental factors. A forex futures day trader primarily employs the main technical indicators prevalent in the spot markets, such as Fibonacci patterns , Bollinger Bands , MACD , oscillators , moving averages , trend lines chart patterns, and support and resistance areas.

Many, if not all the aspects of technical analysis for equities can be interchangeable with the futures market, and thus, trading between the two asset classes can be an easy transition for day traders.

Swing traders are traders who hold positions overnight, for up to a month in length. They generally employ technical analysis spanning a longer time frame hourly to daily charts , as well as short-term macroeconomic factors. Finally, there are the position traders who hold onto a position for multiple weeks to multiple years. For these individuals, technical analysis may take a back seat to macroeconomic factors.

Position traders are not concerned with the day-to-day fluctuations in the contract prices but are interested in the picture as a whole.

As such, they may employ wider stop-losses and differing risk management principles than the swing or day trader. Note, however, these are generalized definitions and the differentiating characteristics of traders are not black and white.

At times, day traders may employ fundamental analysis, such as when Federal Open Market Committee data is released. By the same token, position traders may employ technical analysis tools to set up entries, exits, and trailing stop losses. Furthermore, the time-frames utilized by traders are also quite subjective, and a day trader may hold a position overnight, while a swing trader may hold a position for many months at a time.

Much like in the equities markets, the type of trading style is entirely subjective and varies from individual to individual. Similar to the equities market, traders of FX futures employ both technical and fundamental analysis. Technical analysis by nature examines price and volume data, and subsequently, similar methodologies are prevalent across both the equities and the futures markets. However, the biggest analytical contrast between the FX trader and say, a stock trader, will be in the way they employ fundamental analysis.

Fundamental analysis in the stock market may emphasize scrutinizing the accounting statements of a firm, management discussion and analysis, efficiency analysis, ratio analysis, and industry analysis. Depending upon the analyst, broader macroeconomic principles may take a backseat to company-specific characteristics. However, traders of FX futures and FX in general , must be absolutely familiar with macroeconomic principles and forecasting techniques.

The trader must understand the principal determinants of business cycles within a country, and be able to analyze economic indicators , including though not limited to , yield curves , GDP , CPI , housing, employment, and consumer confidence data.

For example, both the Canadian and Australian dollar are susceptible to movements in the prices of commodities- namely those associated with energy. If a trader feels that oil will experience further declines, they may short CAD futures, or take on a long bet in the hopes of an oil rebound.

Again, fundamental analysis for FX futures always concerns itself with the broader view of the world and the general relation of the markets. Trading forex futures, much like any speculative activity, is risky in nature.

Transparency, liquidity, and lower risk of default make forex futures attractive trading vessels. But the trader must respect the power of the margin in amplifying losses as well as gains , conduct necessary due diligence, and have an adequate risk management plan prior to placing their first trade.

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Forex and futures can be both excellent ways to turn a profit, albeit in very different ways. Tim Fries is the cofounder of The Tokenist. He has a B. in Mechanical Engineering from the University of Michigan, and an MBA from the University Meet Shane. Shane first starting working with The Tokenist in September of — and has happily stuck around ever since. Originally from Maine, All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team.

Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Many stayed inside and searched for ways to provide additional income. And interest in forex trading continued to soar in as forex brokers had record numbers of new clients.

Both futures and forex can seem abstract and therefore hard to even grapple with. In fact, both forex and futures are pretty darn easy to understand. If you want to buy the new iPhone, you have to exchange your dollars—with a store—for the phone.

Easy peasy, right? When trading forex, you deal with currency pairs, meaning currencies from two different countries. Here are some common examples:. You might notice that USD is a part of all of these pairs—this makes sense since USD is involved in over 90 percent of forex trades. While the top forex brokers in the U. will likely use exchange rates similar to what you can find on live exchange rate websites, their ask prices will always be higher than the bid. They have bills to pay, after all.

Depending on the currency pair, the difference between bid and ask called the spread can be small or it can be large. Futures, also called futures contracts, are agreements that obligate parties to trade assets on a predetermined date and price. If you could actually wait, anyway. Futures are a kind of derivative , meaning they are a contract between two parties whose value is based on underlying assets. The assets that are traded with futures contracts can vary widely, such as:.

Futures can be used both by companies as a hedge against price volatility and by investors who speculate about future price changes. Many factors influence futures prices, including supply and demand, liquidity, and the global economy as a whole—even droughts and climate change can affect futures prices.

Some assets may steadily increase in price, but some can decrease over long periods of time. Just like other types of assets, currencies, too, can be traded with futures contracts.

Currency futures are useful in a number of scenarios, such as for hedging and for price speculation. The latter is how people make some serious cash. Unlike currency forwards, currency futures are traded on an exchange. Each currency future has a corresponding symbol on the exchange. Much like forex, you will need to leverage the advantages offered by the top futures brokers if you want to trade futures.

This can vary, though—some brokers require you to have equity greater than the margin mentioned in the contract. To illustrate, consider a simple example:. Currency futures work similarly, except that you agree to purchase a set amount of one currency for a set amount of another currency on the expiration date. Even if the exchange rate increases to 1. The standard for one Euro future contract is , Euros. The contract expires in three weeks, and ABC lets the contract expire.

How much does ABC pay? The truth is that we gave you the 1. Even though the exchange rate did rise by the expiration date, ABC pays the 1. The differences between forex and futures are not huge, but there are some points worth considering. Here are a few of them:. One key difference between forex and futures are the prices traders see.

Forex traders are traded on the centralized Chicago Mercantile Exchange CME , which means all traders can see the exact price at which each contract is trading. Forex is different because all trades go directly through brokers. The data you see is a sampling of real trades, but not every trade is captured. Note that when we say futures have a lower margin requirement, we mean the percent of equity you have in the transaction.

In other words, the dollar amount will vary based on what is being traded, but futures contracts often allow you to leverage a greater percentage of the trade.

In other words, futures allow you to turn a bigger profit with less starting capital. Thus, the broker you choose also influences how much you are allowed to leverage. So, make sure you pick a good one! Instead, each type of contract has set expiration dates throughout the year usually four or more of them. Contracts can be traded for a specific amount of time before they expire.

Barchart is a good site for futures contract expiration dates. In other words, the essentials. Trading currency futures and forex each have their own set of benefits and challenges. Of course that is true, or everyone would just trade one or the other, right? The biggest difference between trading currency futures and trading forex is what you are trading. In the spot forex market literally, trading on the spot , you usually just trade one currency for another right then and there.

But with currency futures, you trade a contract to make a future purchase. In practicality, one big difference when trading futures contracts is that they are more speculative. Here are a few steps you can take to get started:. Unsurprisingly, COVID has led to increased volatility in numerous markets around the world. Although unemployment has increased in many countries, those who have the financial means and are stuck at home have turned to trading. That has led to many opportunities, particularly in the spot forex market.

In fact, all signs point to a healthier forex market than ever during these crazy times. Forex brokers have reported record volumes and thousands of new clients as traders look to take advantage of the increased volatility. While there has been an unprecedented opportunity in the forex market during COVID, some traders have experienced significant losses due to over-leveraging—these are usually inexperienced investors going for risky trades. As for the futures market, there are definitely opportunities in quite a few sectors.

But since there are many different types of futures contracts, some are faring better than others. Meanwhile, futures in cryptocurrencies are seeing huge jumps as of late; ether futures recently saw a 7.

Because of the growth spurt cryptos have seen lately, futures traders world-round are seeing investing in Bitcoin as a very profitable venture. Both forex and currency futures are useful assets that also provide a number of opportunities for traders. Whether you want to buy forex or currency futures, you will need to work with a broker.

That being said, currency futures are traded on a centralized exchange, while forex is not. However, both forex and currency futures have standardized symbols. On the other hand, currency futures always start with a 6, such as 6E, 6B, or 6J. Both forex and currency futures can be used for speculation or for more specific purposes. You need forex when traveling to another country or when companies in different countries do business. Companies can use currency futures as a hedge against exchange rate changes.

Both forex and currency futures can be speculative, too. Both can be a good way to turn a profit, depending on your trading strategy. A futures contract is a currency agreement by one party to exchange set amounts of currency on a future date. The easiest way to buy currency futures is to set up an account with a futures broker. Currency futures can be used by speculators who believe one currency will strengthen or weaken against another currency.

They can then buy or sell currency futures based on the current exchange rate and the direction in which they believe it will move. By Tim Fries. Tim Fries.

Reviewed by Shane Neagle. Shane Neagle. Currency Symbol Euro FX 6E British Pound 6B Japanese Yen 6J Australian Dollar 6A New Zealand Dollar 6N Swiss Franc 6S. Futures vs Forex FAQs What Is the Difference Between a Currency Futures Contract and a Swap?

How Do I Buy Currency Futures?

All the futures contracts have a specific expiration date which is discussed by both the parties. Request a Free Broker Consultation. Get Started securely through Pepperstone's website More Details. Day trading is the act of purchasing and selling or selling and purchasing the same security on the same day in a margin account. Meanwhile, futures in cryptocurrencies are seeing huge jumps as of late; ether futures recently saw a 7. This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

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