Difference Between Futures and Forex (With Table)

The majority of forex market trading, such as Spot forex, is done over the counter. As a result, there is less trade transparency, which increases the counter-party risk. Futures are entirely centralised, with most trading taking place on an exchange. When trading Futures, the risk of counterparty default is lessened.

Futures vs Forex

The difference between futures and forex is that the pricing of futures markets is clear. Only the commission is paid, which is a fraction of what is paid in currency markets. However, trading on forex markets is done either by paying a spread or by paying a commission. The fees paid currently, however, are substantially more than those that will be paid in the future. Contracts involving FX pairings and markets are typically traded with higher leverage than its counterpart.

Futures contracts incorporate currencies and hence have the concept of an expiration date. In other words, they have a certain number of days before they expire. Futures have the option to access and read some exclusive information, such as weekly institutional position reporting. Traders report of commitment is another name for it. In contrast to the forex market, futures goods are usually priced separately. Futures contracts are often traded with a lower level of leverage than other transactions.

In forex markets, also known as spot forex markets, traders can hold positions for an infinite period and can also buy positions. As a result, there is no idea of expiration in the currency market. The trader’s report of commitment, which is normally made every week, and the institutional positions are reported here, are not available to view or read on the forex exchanges. The items and values associated with forex are not self-contained; instead, they are dependent on other currencies.

Comparison Table Between Futures and Forex

Parameters of ComparisonFuturesForex
TypeCentralisedOver the counter
FeesOnly commissionEither commission or mark up spread
LeverageLowHigh
CurrencyIndependentDependant
ExpiryExistsDoes not exist

What is Futures?

Futures are completely centralised, with most trading taking place on an exchange. In the case of futures, the risk of counterparty default is minimised while trading. The pricing of futures markets is done straightforwardly. Only the commission is paid, which is a fraction of what it costs to trade on the currency exchanges.

Futures contracts involve currencies and, as a result, have the concept of an expiration date. In other words, they have a certain number of days till they expire. Futures can view and read some exclusive information, such as weekly institutional position reports.

Traders report of commitment is another name for this. In contrast to the forex market, the products involved in futures are usually priced separately. Futures contracts are often traded with a lower level of leverage than other types of transactions.

What is Forex?

Trading in the majority of forms of forex markets, such as Spot forex, is mainly done over the counter. As a result, there is a reduction in trade transparency, which increases the risk of the counter-party. In the case of forex markets, trading is either done by paying a spread or by paying a commission.

The fees paid here, however, are substantially larger than those paid in the future. In forex markets, which also include spot forex markets, traders can hold positions for an extended period and can also buy positions. As a result, in the case of the FX market, there is no idea of expiration.

The trader’s report of commitment, which is normally produced every week, and the institutional positions are reported here, are not available for viewing or reading on forex exchanges. The items and values associated with forex are not self-contained; rather, they are dependent on other currencies. Contracts related to FX pairs and markets are typically traded with higher leverage.

Main Differences Between Futures and Forex

  1. Futures are exclusively centralised, and the trading is usually done on an exchange. In the case of Futures, the risk concerned with counterparty defaults is reduced while trading. On the other hand, Most of the time, the trading of majority types of forex market like Spot forex, are usually done over the counter. Therefore, a situation arises of trade transparency which is much less and even boosts up the risk of the counter-party.
  2. When the future markets are traded, the pricing is done straightforwardly. Here only the amount of commission is paid, which is significantly less than the trading which is done in forex markets. On the other hand, in the case of forex markets, the trading is done by either paying a spread mark up or by paying a commission. However, the fees paid here are significantly higher in comparison to those paid in future.
  3. The contracts involving futures include currencies and thus also possesses the concept of the expiration date. In other words, they possess finite expiration dates. On the other hand, In forex markets, or which also involves spot forex markets, here the traders possess the potential to hold the positions they possess for an indefinite time and can also buy positions. Thus, it means that in the case of the forex market, the concept of expiration does not exist.
  4. Futures possess the capability to view and read some exclusive information like the reporting of the institutional positions every week. Otherwise called as traders report of commitment. However, on the other hand, forex markets do not possess the potential to view or read any pieces of information like the trader’s report of commitment, which is usually made every week, and the institutional positions are reported here.
  5. The products concerned with futures are usually priced independently, unlike the forex market. On the other hand, the products and values concerned with forex are not independent, rather it depends upon other existing currencies.
  6. The trading of the contracts associated with futures is usually done with comparatively lesser leverage. On the other hand, the trading of contracts associated with the forex pairs and markets is usually done with higher leverage.

Conclusion

Futures trading is usually done on an exchange and is entirely centralised. Futures trading reduces the risk of counterparty defaults. The pricing of futures markets is simple. Only a small commission is paid, compared to currency trading. Futures contracts involve currencies. Therefore the concept of an expiration date is also present.

Futures can access and read some exclusive information, such as the weekly reporting of institutional positions. Traders’ commitment report is another name for it. Unlike the forex market, futures items are usually priced separately. Futures contracts are often traded with a lower level of leverage.

The majority of forex market trading, such as Spot forex, is done over the counter the majority of the time. As a result, there is a significantly lower level of transaction transparency, which increases the counter-party risk. Trading on the forex markets is done either by paying a spread or by paying a commission.

However, in comparison to future payments, the fees paid now are substantially larger. In forex markets, also known as spot forex markets, traders have the option of holding their positions for an infinite period while also having the ability to buy positions. Forex products and values are not self-contained; rather, they are dependent on other currencies.

References

  1. https://books.google.com/books?hl=en&lr=lang_en&id=LkEf6cVMbKcC&oi=fnd&pg=PR1&dq=futures+and+forex&ots=IjIhUR9K9U&sig=CUsOyMHD4bVafZZprefdMa1vCwI
  2. https://link.springer.com/chapter/10.1007/978-3-030-38227-8_7
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