In this informative article, I will go over the six important differences in the middle futures and forex stores. Even should you not trade these securities, then it’s crucial that you get some base knowledge of the highly liquid stores.
Before we proceed in to the gaps we’ll offer quick overviews on the forex and futures stores.
- Number 1 – Spot forex stores have been traded over, while stocks are leveraged
- OTC – Forex
- Futures Exchanges
- Number 2 – Spot forex stores may have dispersed Mark up and commissions while stocks Just Have commissions
- Forex Spread Mark-up
- Futures Commissions
- Number 3 – Futures are high at US dollars
- Number 4 – Futures tick values are somewhat distinct compared to place forex
- Number 5 – Futures possess an expiry
- Number 6 – You are able to see institutional placement
Overview of Forex Market
Size of Forex Market
The Foreign Currency or forex is arguably your biggest marketplace on earth using an average daily turnover of $5.1 trillion (by April 2016 -Triennial Central Bank Survey from BIS). [1 ] The forex markets trade across the counter and there isn’t any central exchange.
The forex marketplace is only a juggernaut. Retail traders and associations love its own liquidity, low funding requirements and also the capacity to leverage upward.
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Forex Daily Turnover
Foreign exchange trading is the trading of currencies in the spot stores. Unlike shares forex is traded as a currency pair such as EUR and USD. The before all else currency is known as the base currency and the second currency is known as the quote currency.  Therefore, in forex, a rate of EURUSD = 1.1095 means that 1 euro is equal to 1.1095 U.S. dollars.
The high use of leverage has become one of the main points for the retail category of traders. With high leverage comes the risk of losing significant capital. It is for this argumentation in 2010 the Commodities and Futures Trading Commission (CFTC) introduced new rules for U.S. based forex brokerages limiting leverage to 1:50, from 1:200 in a bid to keep private traders losses more manageable. 
However, look outside the U.S and chances are that forex brokerages based in other jurisdictions go on to offer even higher leverage ratios.
This, of course, does not bode well for investors.
What is the Forex Market? [Infographic]
I am a visual learner, so if you are everything like me, the beneath infographic will breakdown the forex marketplace on a third-grade level.
Source of Infographic:http://forextraininggroup.com/15-interesting-facts-forex-market-infographic/
Overview of Futures Markets
Futures stores are exchanges where traders purchase and sell forward contracts for a security. These securities can be in the form of commodities such as sugar and oil. These securities can also come in the form of index futures which reflect the major global indexes such as the S&P 500.
The futures stores trade on a number of exchanges such as the Chicago Mercantile Exchange (CME) and the LondonInternational FinancialFuturesand OptionsExchange.
I’m not going to provide as detailed an overview of the futures marketplace because it is more known and visible than Forex.
So, I’m going to leave it here with the futures overview and dive into the six key differences.
6 key differences in the middle Forex and Futures stores
#1 – Spot forex stores are traded over-the-counter, while futures are centralized
OTC – Forex
As mentioned earlier in the article, forex is traded over-the-counter. This results in less trade transparency.
Trading over the counter also introduces counter-party risk.
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Futures are centralized and traded on an exchange. The futures exchange rulebook requires all participants to put up a performance bond followed by maintaining a maintenance margin at all times. This greatly reduces the risk of a counterparty default when you trading futures.
#2 – Spot forex stores can have spread mark-up and commissions while futures only have commissions
Forex Spread Mark-up
In the OTC spot forex stores, traders will have to pay either a commission or a spread mark up. A spread mark-up is a markup on the bid and ask amounts added by the broker.
Furthermore, some retail brokers also add an additional commission as well, on top of the spread mark up thus further increasing the cost of transactions.
When you trade the futures stores, the pricing is straight-forward. You only pay a commission on the trade. The commissions you pay can vary based on the futures brokerage house. But no matter what commissions you pay, the fees are significantly lower than trading the spot forex stores.
#3 – Futures are priced in US dollars
When you trade futures, the different contracts are all quoted in US dollars.
The chart beneath shows three charts. To the left is the Japanese Yen futures and to the right is the USDJPY spot forex chart.
Yen Futures – USDJPY and 1-USDJPY
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Therefore, provided that you trade a futures contract that’s quoted in USD, it is possible to come across a corresponding location forex tool too. The table beneath provides succinct summary.
|Futures Instrument||Spot Forex tool (equal )|
|British pound stocks||GBPUSD|
|New Zealand dollar stocks||NZDUSD|
|Australian dollar stocks||AUDUSD|
|Swiss franc stocks||1/USDCHF|
|Japanese yen stocks||1/USDJPY|
|Canadian dollar stocks||1/USDCAD|
|Mexican peso stocks||1/USDMXN|
|South African rand stocks||1/USDZAR|
Number 4 – Futures tick values are somewhat distinct compared to place forex
When you trade forex , the tick value for the trades can vary. As an instance, a miniature euro or perhaps a British pound contract comes with a tick price of $6.25 (or $12.50 in the event that you trade a routine huge contract) with minimum tick size will be 0.0001. That really is standardized, however whenever you trade the spot forex stores, the tick value varies.
For instance, if you trade a normal contract at the area forex stores that will be 1 lot or even 100,000 units, then the minimum tick size is 10.
Number 5 – Futures possess an expiry
All futures , including monies, possess a contract expiry date. This means in case the futures trader wants to maintain their standing, the futures trader is going to need to reevaluate their contract into another following month.
In the spot forex stores, there aren’t any expirations and traders may purchase and hold their own rankings forever.
Number 6 – You are able to view institutional placement
A exceptional facet of the currency market may be your potential to view some advice that’s otherwise unavailable from the forex spot stores. By way of instance, the weekly position coverage, referred to since the Commitment of Traders report provides insights to perhaps the speculators and hedgers are net long or net short.
Commitment of Traders Report for British Pound Futures
How Can Theforexassassin Help?
We do not have forex data, but we do have currency futures within Theforexassassin. If you are thinking about trading these contracts you can practice 24/7 in order to develop your own custom method.
- Triennial Central Bank Survey of foreign exchange and OTC derivatives stores in 2016. Bank for International Settlements
- How to Identify Base and Counter Currencies. Dummies.com
- New CFTC Forex Trading Rules Call For 50:1 Leverage. Forbes.com
- Understanding Futures Expiration and Contract Roll. ETrade.com
- Commitments of Traders. U.S. Commodity Futures Trading Commission.