Forex vs. Futures: what are the differences?

Navigating the world of financial markets can be complex, especially when deciding between trading forex or futures. Both markets offer unique opportunities and challenges, catering to different trading styles and objectives. Understanding the key distinctions between forex and futures is crucial for traders looking to optimize their strategies and align their investments with their risk tolerance and market expertise. This article delves into the core differences, including market structure, trading hours, leverage, and contract specifications, to provide a comprehensive overview of what each market entails. By exploring these fundamental aspects, traders can make informed decisions about which market may best suit their trading goals.

What are currency futures?

Currency futures, also known as forex futures, are standardized contracts traded on exchanges to buy or sell a specific currency at a predetermined price on a set future date. Unlike the spot forex market, where transactions occur over the counter and are settled immediately, currency futures are formal agreements with standardized terms, including contract size and expiration date. These contracts provide traders with the ability to speculate on future currency price movements or hedge against potential currency risk.

What is forex?

Forex, short for foreign exchange, refers to the global marketplace where currencies are traded. It's the largest and most liquid financial market in the world, with a daily trading volume exceeding $6 trillion. Unlike centralized exchanges such as those for stocks or commodities, the forex market operates over the counter (OTC) and is decentralized, meaning that trading occurs directly between parties, typically through electronic trading platforms and financial institutions.

Forex vs. futures: what is the difference?

Benefits of trading forex

Trading forex offers several benefits that attract a diverse range of participants, from individual traders to large financial institutions. Here are some of the key advantages:

1. High Liquidity: The forex interbank market is the most liquid financial market in the world, with a daily turnover of over $6 trillion. This high liquidity ensures that trades can be executed quickly and efficiently with minimal price fluctuations, even for large transactions. Please note that tastyfx customers do not have access to the interbank market.
2. 24-Hour Market: Forex operates 24 hours a day, five days a week, allowing traders to participate at any time that suits them. This continuous operation provides flexibility to respond to economic events and market developments in real-time.
3. Leverage: Forex brokers often offer high leverage ratios, enabling traders to control large positions with a relatively small amount of capital. This magnifies potential returns, although it also increases risk.
4. Diverse Trading Opportunities: With numerous currency pairs to trade, including major, minor, and exotic pairs, traders can diversify their portfolios and explore different trading strategies based on economic trends and geopolitical events.
5. Low Transaction Costs: Typically, forex trading costs are embedded in the spread between the bid and ask prices, with many brokers offering tight spreads, especially for major currency pairs. This can make forex trading cost-effective compared to other markets.
6. No Central Exchange: The decentralized nature of the forex market means it is not necessarily tied to any specific location. This reduces the risk of market manipulation and allows for a broader range of market participants. While this is true of the overall interbank market, this is not true of the spot fx market.
7. Accessibility: With the advent of online trading platforms, forex trading is highly accessible to individuals with varying levels of experience and capital. Many brokers offer demo accounts and educational resources to help new traders get started.

These benefits make forex trading an attractive option for those looking to engage in the global financial markets, offering opportunities for profit and diversification. However, it is important for traders to be aware of the risks and to employ sound risk management strategies.

How to trade forex

1. Open a tastyfx trading account

If you want to trade spot forex, you’ll need an account with a leveraged trading provider. You can open a tastyfx forex account in minutes, and there’s no obligation to add funds until you want to place a trade. Pick a currency pair to trade 

Create live account

2. Build a trading plan

A trading plan helps take the emotion out of your decision-making as well as provide some structure for when you open and close your positions. Once you have chosen a particular forex trading strategy, it’s time to apply it. Use your favorite technical analysis tools on the markets you want to trade and decide what your first trade should be.

Learn what moves forex markets

3. Decide whether you would like to go long or short

Hit buy to open a long position or sell to open a short position. When you’ve decided it’s time to close your position, just make the opposite trade or press close from the positions tab.

4. Open and monitor your trade  

Once you have chosen your platform and funded your account, you can start trading. Open the trade ticket for your selected market, and you’ll see both a buy and a sell price listed. You’ll also be able to decide the size of your position and add any stop-losses or take-profits that will close your trade once it reaches a certain level.

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing. Past performance is not indicative of future results.