The main difference between currency futures and spot FX is when the trading price is determined and when the physical exchange of the currency pair takes place. With currency futures, the price is determined when the contract is signed and the currency pair is exchanged on the delivery date, which is usually in the distant future. However, the biggest analytical contrast between the FX trader and say, a stock trader, will be in the way they employ fundamental analysis. Fundamental analysis in the stock market may emphasize scrutinizing the accounting statements of a firm, management discussion and analysis, efficiency analysis, ratio analysis, and industry analysis. Depending upon the analyst, broader macroeconomic principles may take a backseat to company-specific characteristics.

Currency Futures Exchanges

Most retail forex traders will find the accessibly, leverage, low initial margin requirement and position-sizing flexibility of trading currencies through online forex brokers more attractive than trading currency futures. The global forex market is the largest market in the world with over US$5 trillion traded daily, according to Bank for International Settlements (BIS) data. The forex market, however, is not the only way for investors and traders to participate in foreign exchange.

Futures are derivative contracts used for the exchange of physical assets, as well as for hedging and speculation. A futures contract is an agreement to buy or sell an asset at a future date, which is a currency pair in the case of currency futures. When trading in the spot forex market, currencies are physically exchanged on the settlement or value date.

This process, known as mark-to-market, uses the average of the final few trades of the day to calculate a settlement price. This settlement price is then used to determine whether a gain or loss has been incurred in a futures account. In the time span between the previous day’s settlement and the current’s, the gains and losses are based on the last settlement value.

But the trader must respect the power of the margin in amplifying losses (as well as gains), conduct necessary due diligence, and have an adequate risk management plan prior to placing their first trade. The lack of an intermediary exchange forces forex brokers to have different liquidity providers. This leads to lack of transparency, wider spreads, and discrepancies on price quotes.

The Forex Spot Market Enables Massive Leverage

So while forex and futures usually aren’t the same thing, they sometimes come together in a beautiful marriage of assets. We’ll break down all this and more in this article, so read on if you want to find out what the deal is with futures and forex. The risks of loss from investing in CFDs can be substantial and the value of your investments umarkets review may fluctuate. 70% of retail client accounts lose money when trading CFDs, with this investment provider.

What is Futures Trading?

Only a small percentage of currency futures contracts are settled in the physical delivery of foreign exchange between a buyer and seller. When a currency futures contract is held to expiration and is physically settled, the appropriate exchange and the participant each have duties to complete the delivery. Currency futures, also called forex futures or foreign exchange futures, are exchange-traded futures contracts to easymarkets broker buy or sell a specified amount of a particular currency at a set price and date in the future.

Forex vs futures: how to trade

The spread refers to the difference between the bid price and the ask price. This spread is potentially much higher for a futures trade than for a spot trade. If you’re a retail trader and would like to get started trading forex or futures, Benzinga has taken much of the guesswork out of selecting a reputable broker to trade through by compiling the comparison table below. Trading currency futures has several advantages and disadvantages relative to trading spot forex. The best option for you will depend on which venue suits your currency trading needs and preferences best. This same trade in a single currency futures trade would have been profitable so if you’re finding yourself right but wrong all the time, simplifying your trading decisions through single currency contracts could be a great option.

1. A currency futures contract is a financial contract that obligates the involved parties to trade a particular amount of a currency pair at a predetermined price (the stated exchange rate) at some point in the future.
2. Unlike forex, wherein contracts are traded via currency brokers, currency futures are traded on exchanges that provide regulation in terms of centralized pricing and clearing.
3. Meanwhile, futures in cryptocurrencies are seeing huge jumps as of late; ether futures recently saw a 7.3% increase in just 24 hours.
4. Many investors use them to hedge fluctuations in currency exchange rates.

How Big Is the Foreign Exchange Market?

The EUR/USD (euro/U.S. dollar) is the most commonly traded currency pair in the foreign exchange market. This pair had almost 23% of the market share, according to the Bank for International Settlements. This is likely due to the strength of both the U.S. and European economies and their relative political stability. By 2022, daily global spot FX trading was valued at more than $2 trillion. Currency futures are also common in global trade and for large corporations.

Forex futures are exchange-traded currency derivative contracts obligating the buyer and seller to transact at a set price and predetermined time. You can trade currency futures on a variety of currency pairs that are also traded in the broader forex market. Forex trading involves the buying and selling of different currencies on the foreign exchange market.

Though there has been a distinct shift towards regulation of the spot forex market globally, these markets are still less regulated than currency futures. Forex brokers have reported record volumes and thousands of new clients as traders look to take advantage of the increased volatility. While there has been an unprecedented opportunity in the forex market during COVID-19, some traders have experienced significant losses due to over-leveraging—these are usually inexperienced investors going for risky trades. Note that when we say futures have a lower margin requirement, we mean the percent of equity you have in the transaction. In other words, the dollar amount will vary based on what is being traded, but futures contracts often allow you to leverage a greater percentage of the trade. In other words, futures allow you to turn a bigger profit with less starting capital.

Some assets may steadily increase in price, but some can decrease over long periods of time. Therefore, signing a futures contract is no guarantee you’ll be able to buy that thing at a discount. Some futures contracts, like those on major indices or commodities, are highly liquid, while others may have lower liquidity.