Forex vs. Other Markets

Forex vs. Securities

$ 29.95 per transaction with online discounts up to $ 100 or more per transaction with full service agents.

Another important point to keep in mind is the value of the buyer-seller differential. Regardless of the size of the transaction, the forex trading margins are usually 5 pips or less (a pip is 0.0005 cents). In general, the margin value in a forex transaction is less than 1/10 of a stock transaction, which may include a margin of 0.125 (1/8).

Potential profit and loss in both upward and downward markets

Potential for profit and loss in both rising and falling markets In each open FX position, an investor goes long in one currency and short in the other. A short position is one in which the broker sells a currency before it depreciates. This means that there is the possibility of both profits and losses in rising and falling markets.

Forex Futures

The advantages of forex trading on forex futures are considerable. The differences between the two instruments vary from philosophical realities such as the histories of each, their target audience and their relevance in modern forex markets, to more tangible issues such as transaction fees, coverage requirements, access To the liquidity, the ease of use and the technical and formative support offered by providers of each service. These differences are described below:

24-hour transactions

The OTC cash currency market does not operate on an organized exchange such as the Chicago Futures Market or other institutionalized futures exchanges. The OTC market and its inherent liquidity moves around the world continuously and does not "close" at the end of the day to allow for different daytime sessions and evening sessions. 

Transactions without commissions

The OTC market is based on the global market prices for currencies established by banks and brokers rather than on a single stock exchange. Most of the world's foreign exchange banks and brokers obtain their compensation from the difference between the value of the buyer-seller differential in the price of the currency offered to the participating traders and / or the ability to accumulate positions by Account and take the risk of the net open positions they carry. Futures exchanges and their initiators and clearing members obtain their compensation from brokerage, compensation, exchange fees, electronic access fees, fees and contribution rates.

50: 1 Leverage

The leverage offered in the foreign exchange market, which is usually much higher than that offered in the futures market, can act in favor of the broker if he is right and very against if he is wrong.

Unparalleled liquidity

A higher volume of transactions equals better liquidity. The daily volume of currency futures on the Chicago Mercantile Exchange is only 1% of the volume that is seen every day in the forex markets. Unparalleled liquidity is one of the many characteristics that differentiate forex markets from cash futures currencies. But in reality, this is no longer news. Any currency trader can tell you that cash has been king since the beginnings of modern currency markets in the early 1970s. The real news is that the individual brokers in each risk profile now have full access To opportunities available in the forex markets.

Adjusted sales margins

Forex markets offer a tighter bid price to offer margins of sale than the currency futures markets. By investing the price of futures to compare it with cash, you can immediately see that in the previous USD / CHF example, investing the futures trading price of 0.5894 - 0.5897 results in a cash price of 1.6958 - 1.6966, 8 pips against the 5 pips selling margin available in the cash markets.

Low coverage rates

Forex markets offer greater leverage and lower coverage rates than those of currency futures transactions. When dealing with currency futures, brokers have a coverage rate for "daytime" transactions and another for "overnight" positions. These coverage rates may vary depending on the size of the transaction. Currency transactions offer the customer the same rate all the time, day and night.

Simplicity

Currency futures prices have the added complication of including an anticipated forex component that takes into account a time factor, interest rates and interest differentials between several currencies. Forex markets do not require such adjustments, mathematical manipulation or consideration for the interest rate component of futures contracts.

• Forex markets use terms and price quotes used universally and easily understandable. Forex futures quotes are investments of the cash price. For example, if the cash price for USD / CHF is 1.2600 / 1.2605, the futures equivalent is 0.7933 / 0.7937; A methodology followed only in the confines of futures transactions.
• Currency futures have the added baggage of transaction fees, exchange rates and clearing rates. These rates can increase rapidly and seriously diminish the earnings of the broker. In contrast, currency futures are a small part of a much larger market; One that has undergone historical changes in the last decade.
• Currency futures contracts (called IMM contracts or International Money Market futures) were created in 1972 on the Chicago Mercantile Exchange.
• These contracts were created for market professionals, who at that time were responsible for 99% of the volume generated in the foreign exchange markets.
• While some intrepid individuals speculated on forex futures, highly skilled specialists dominated the parquets.
• Instead of becoming the world's center of foreign exchange transactions, currency futures became a secondary (in relation to the cash markets) side for hedge fund specialists and money changers lurking for momentary small anomalies between prices Of the currencies of futures and cash.
• In what appears to be a more permanent than cyclical change, less and less of these windows of change are opening up. And, when they do, a swarm of professional stockbrokers immediately give them closure.

These changes have reduced the number of forex traders, further limited opportunities forex futures arbitrage and, so far, have paved the way for more orderly markets. And while a more level playing field is poison for the profit and loss of a currency futures broker, it has meant the way out of the labyrinth for individuals operating in the forex markets.