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New to Forex
Forex vs. Futures
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Advantage |
FX Market |
Futures Market |
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24 Hour Trading |
Yes |
Limited |
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Commission Free Trading* |
Yes |
No |
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Up to 200:1 Leverage** |
Yes |
No |
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Guaranteed Limited Risk |
Yes |
No |
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Liquidity
According to the Bank for International Settlements, turnover in traditional foreign exchange instruments is a $3.2 trillion daily market, making it the largest and one of the most liquid markets in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of other markets. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The Forex market is generally more liquid, meaning positions can be liquidated and stop orders executed rapidly.
24-Hour Market Action
Unlike most futures exchanges, the currency market is a seamless 24-hour market. Subject to available liquidity, at 22:15 GMT, trading begins as markets open in Sydney and Singapore. At 00:00 GMT the Tokyo market opens, followed by London at 07:00 GMT, and finally New York at 18:00 GMT As a trader, this allows you to react to favorable or unfavorable news by trading immediately. If important data comes in from England or Japan while the U.S. futures market is closed, the next day's opening could be a wild ride. (Overnight markets in futures currency contracts exist, but they can only be thinly traded, are not very liquid and are difficult for the average investor to access).
ZERO Commissions*
In the currency market, you pay NO commissions and NO exchange fees. Because you deal directly with the market maker via a purely electronic online exchange, you eliminate both ticket costs and middleman brokerage fees. There is still a cost to initiating any trade, but that cost is reflected in the bid/ask spread that is also present in futures or equities trading.
* FXCM is compensated through the bid/ask spread except where otherwise noted. Please note commission charges apply for certain classes of non-standard accounts such as Active Trader. For additional information click here.
Execution Quality and Speed
The futures and equities market does not offer rapid execution. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. In the futures and equities market, the prices quoted by brokers often represent the LAST trade, not necessarily the price for which the contract will be filled. In contrast, when trading with FXCM you get rapid execution and the best efforts made to fill your trade at the price requested.
Guaranteed Limited Risk
For the purpose of risk management, traders must have position limits. This number is set relative to the money in a trader’s account. Risk is minimised in the spot FX market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the dollar value of the account as a result of trading losses. All open positions may be closed immediately regardless of the size or the nature of positions held within the account. If the futures market moves against you, your position may be liquidated at a loss and you will be liable for any resulting deficit in the account.
**Leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
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Think You
are Clueless about
the Currency Market? |
 If the Australian stock market rallies
the Australian dollar SHOULD |
 If the US current account deficit widens due to a Chinese sell-off of US treasures, the US dollar SHOULD |
 In a surprise decision, the FED raises interest rates by
50 bp. The US dollar SHOULD
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 If oil prices surge to record highs, what effect will this have on the US dollar? |
 An increase in unemployment numbers in the US will have what effect on the US dollar? |
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