Forex vs. Futures

Liquidity

The spot Forex market is a $1.4 trillion daily market, making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures market it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.

24-Hour Market

The Forex market is a seamless 24-hour market. At 5 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 PM the Tokyo market opens, followed by London at 2 AM, and finally New York at 8 AM. As a trader, this allows you to react to favorable/unfavorable news by trading immediately. It also gives traders the added flexibility of determining their trading day.

By comparison, the currency futures markets in the United States, such as the Chicago Mercantile Exchange and Philadelphia Exchange, have regulated hours. The CME, for instance, opens at 8:20 AM New York Time and closes at 2:00PM. Therefore, 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.

Execution Quality and Speed

The futures market is known for inconsistent execution, both in terms of pricing and execution time. Every futures trader has experienced a half hour wait for a market order to be filled and has been executed at a price far away from where the market was supposed to be trading. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. GFM offers instantaneous execution and price certainty. On the FX trading station, traders execute directly off real time streaming prices. There is no discrepancy between the displayed price and the execution price. This holds true even during volatile times and fast moving markets. In the futures market, execution is uncertain because all orders must be done on the exchange. This creates a situation where the number of participants, which in turn limits quantities that can be traded at a given price, limits liquidity. Real time streaming prices ensure that market orders, stops, and limits are executed without slippage and/or partial fills.

Commission Free Trading

In the futures market traders must pay a spread and a commission. All traded financial products have a “bid” (buy) price, and an “ask” (sell) price, with the difference defining the spread, or cost of execution. Up until recently, lack of transparency in the futures market has disguised the spread. Now online trading platforms, which show the depth of the market by including both the buy and sell price, allow traders to see the real cost of the trade. Because the currency market offers round-the-clock liquidity, traders receive tight, competitive spreads both intra-day and night. Futures traders are more vulnerable to liquidity risk and typically receive wider dealing spreads, especially during after hours trading.

GFM charges no commission or transactions fees to trade currencies online or over the phone. The over-the counter structure of the currency market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. All clients have access to deal able bid/ask quotes. In the futures market the prices represent the LAST trade, not necessarily the price for which the contract will be filled. This lack of transparency hides the true cost of the trade.

Reporting and Back Office Capabilities

In the spot Forex market, traders can see the value of their positions and account equity move up and down with the market in real time. The key information for every account is re-calculated and updated every time the exchange rates change. Traders have immediate access to detailed information regarding every open position, open order, and the generated P/L per trade. Traders also have 24-hour access to full, real time snapshots of their account statement since inception, or on a daily, weekly, monthly or yearly basis. As a trader this means you never have to approximate your account equity or be uncertain in regards to available margin.

Margin/Risk Management

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 minimized 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 will be closed immediately regardless of the size or the nature of positions held within the account. If 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.