Forex Futures Trading

The forex market, foreign exchange market, or just fx market is the market for currency exchange done trough the Interbank market. This is the place where all the world currencies are traded, but unlike the stock exchange there’s no actual physical marketplace. Yet, over 3 trillion dollars worth of currency changes hands ever day. A smaller percentage of that is done trough forex futures trading. This doesn’t mean there’s no money to be made from trading forex futures though.

Forex trading is done by buying and selling currencies against another. A currency is always valued against another so a transaction must always include simultaneously buying and selling two different currencies. The trader hopes that one of the currencies will increase in relative value so that he will make a profit. Forex futures trading is basically the same concept, but there are some notable differences. When you buy a currency pair, you get the currency right away, the trade is carried out instantly. Futures on the other hand are agreements to buy or sell a currency at some point in the future, hence the name. The buyer and seller makes a contract that has to be kept. You make money from futures if the price of the currency pairs is lower in the future than what you agreed to in the contract.

There’s not a huge market for forex futures trading and if you have traded commodity futures or oil futures, you may feel a little disappointed. This may encourage you to trade spot forex instead, which is trading currency pairs instantly on the market.

Spot forex trading has many advantages compared to forex futures. Futures, including forex futures, are regulated by the NFA (National Futures Association) and they charge fees on all futures trades. Spot forex are unregulated so you don’t have to pay any fees. Another advantage is that spot forex are traded 24 hours a day, where forex futures are only traded when the futures exchange is open. Forex spots are also much more liquid which means that you can fill your order right away and get the price that you want.

As a forex trader, you will be spoilt by choice of brokers, there are over hundred available, and most of them use the popular Meta Trader platform which has a wide userbase and many add ons.

The risk is also lower when you trade spot forex instead of futures, because you don’t commit in the same way. If you have bought a spot, you can always sell it again, unlike futures, where you are committed to buying or selling in the future.

Forex futures trading may not be the best choice for a beginner, but if you are a trader already and is looking for a new challenge then forex futures trading, may be just what you are looking for. Because of the things mentioned above, there are fewer traders who specialize in forex futures trading, so the competition is less fierce.