Compare Forex with Currency Futures Options

Forex vs. Currency Futures Options

Currency trading is the buying and selling of different types of currencies, which includes the Forex and currency futures options for traders. There are literally hundreds to choose from but some are more popular than others. At this point the most popular currencies are those belonging to the US, the Euro, Great Britain and Japan. Foreign currency markets are amongst the most used of all markets and consequently have the highest volumes and liquidity. Currency markets are an enticing source of income for the potential investor, but knowing which one is best for them means having to compare Forex with currency futures options.

The volume and liquidity aspect makes the currency market a natural magnet for all sorts of traders from day traders, through to major banks and corporations. There are a number of different ways to trade currencies and one of the most basic, which has been used by many is exchanging your money when you go for an overseas holiday. The actual exchange is processed by a forex broker, and subsequently the transaction becomes part of the currency market. However, this wouldn’t be a practical method for day traders to use.

Forex

Forex trading is the most popular and well known method of trading in the currency markets. This FX market trades on the actual difference of the exchange rate of two currencies (currencies are always traded in pairs)

The Forex market is different to other markets in that it has no centralised exchange; it is all driven through electronic online processing and transactions. This is a market that operates round the clock five days a week, meaning traders worldwide can always find someone to trade with, there is never any shortage of trades in Forex.

Traders in the Forex marketplace deal with direct currency trades, utilising lots. The size of lots varies and usually is dependent on the broker being used, to conduct the transaction. As a rule of thumb the trader doesn’t put up the full amount of the lot (which is margined) as the sizes start around the $25,000 mark, but around 1/100th would be expected.

Currency Futures

Currency futures are a type of market which operates around currency markets. They trade in futures contracts which are based on the different exchange rate of two currencies. Traders anticipate a profit from predicting a rise in the currency rate from the one set down in the futures contract. Futures contracts consist of a preset amount of money, a fixed predetermined exchange rate and a set time of expiry for the contract.

But the main difference between currency futures and the Forex markets is, whilst they both deal in currencies, the futures market is controlled by a centralised exchange. Which, provides some consistency in their pricing and operations.

Futures or Forex

Whilst both the Forex and currency futures market are based on the currency market there are significant differences in how they operate. These differences have to be compared by the day trader as to whether they fit with his particular method of trading. The Forex on one hand given its size can absorb virtually limitless trades, without it affecting the market, but the currency futures market can only deal with around a 100 trades before the market is affected. An advantage of currency futures however, is that because they are regulated they are not subject to price fixing.

Currency futures markets certainly have a lot of appeal for day traders, particularly those that enjoy that extra measure of security in their trading. But there is another type of trader that thrives on the highs and lows of the Forex market, so the choice in the end will be to compare Forex with currency futures options and decide which is best for you.

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