There are a handful of ways to trade foreign currencies, the most common of which is spot forex. It’s simple to understand and provides the liquidity to make consistent returns. Yet as an aspiring professional trader, it would be foolish to limit your asset exposure to solely trading spot forex. Futures trading is a possible route to branch out your business to. Here’s forex trading vs futures exactly what you must know before getting started today.
What is Futures Trading?
Also regarded to as forex futures, currency futures is an ETF, exchange-traded futures, contract that gives its bearer the right to buy or sell a specified amount of currency at a predetermined price and future date. Currency futures were first sold at the CME, or Chicago Mercantile Exchange, in 1972. Similar to other types of futures assets, currency futures are transacted in terms of months with different maturity dates.
There exists a wide range of currency futures contracts, the most popular of which is Euro futures which is positively correlated to the Euro/Us Dollar pair. Other types include emerging market pairs like the Polish Zloty/US Dollar contract.
Difference Between Forex and Futures
Spot forex tends to be a more liquid market for traders since it remains open 24/5. The market experiences large price changes almost on a daily basis. From its major currency pairs like the Euro/US Dollar to its exotic pairs like US dollar/Swedish Krona, there are tons of tradable opportunities you can capitalize on as a trader.
Currency futures, on the other hand, offer transparent volume thanks to their one centralized exchange, the CME. The Chicago Mercantile Exchange is the primary arena for forex futures. It is the largest exchange in the planet, and one that is well capitalized.
Currency futures, unlike forex, is also highly regulated by the SEC and the NFA. That being said, spot forex has no central exchange whatsoever, meaning you are trading in an artificial market that your broker is creating for you. And of course, this can result in some price manipulations that could lose you money over time.
There are many other things about forex trading vs futures exactly what you must know. If you desire to become a consistently profitable trader for the long haul, knowing the unique characteristics of both markets and how to trade them safely are crucial tasks you must get to beforehand.