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FOREX versus Stocks
By David Greene
Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial Read more...
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FOREX Trading Philosophy
By David Greene
Numerous beginning FOREX traders are enamored by the allure of effortless money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' . These claims have Read more...
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Why FOREX Trading?
By Gay Redmile
FOREX (foreign exchange) trading is the buying and selling of currencies. Currencies are always bought and sold in pairs. As a forex trader you are speculating that the currency you are buying is Read more...
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FOREX versus Futures
By Phil Skills
FOREX Trading vs Futures Trading
The origins of today's futures market lies in the agribusiness markets of the 19th century. At that period, farmers began selling contracts to deliver agricultural goods at a future time. This was done to predict market needs and to insure that ensure supply and demand were stabilized during off seasons.
The present futures market includes far more than agricultural products. The modern futures market is a worldwide market for all sorts of commodities including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds. A futures contract states what price will be paid for a product at a specified future delivery date.
When the futures market is traded by speculators, the actual goods are not important and there is no expectation of delivery. Rather, it is the futures contract itself that is traded as the value of that contract changes daily according to the market value of the commodity in the world markets.
In every futures contract there is a buyer and a seller. The seller purchases a short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date. For example: A farmer agrees to deliver 1000 bushels of wheat to a baker at a price of $5.00 a bushel. If the daily price of wheat futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled daily.
When the contract period ends , the contract is settled. If the price of wheat futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost the same amount. However, the baker now buys wheat on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of wheat. Similarly, the farmer must sell his wheat on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.
The baker, however, is still in effect buying the wheat at $5.00 a bushel, and if he hadn't entered into a futures contract he would have been able to buy wheat at $4.00 a bushel. He protected himself against rising prices but he loses if the market
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price drops.
Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise or by buying short (from the seller) if they expect prices to fall.
FOREX
The foreign exchange market (FOREX) has several advantages over the futures market. FOREX is a more liquid market. Forex is the largest financial market in the world. Forex dwarfs the futures market in the value of daily exchanges. This means that stop orders can be executed more easily and with less slippage in the FOREX market.
The FOREX is open 24 hours a day, 5 days a week. Most futures exchanges are open 7 hours a day. This makes FOREX more liquid and allows FOREX traders to take advantage of trading opportunities as they occur rather than waiting for the market to open.
FOREX transactions are commission-free . Brokers earn money by setting a spread. This is the difference between what a currency can be bought at and what it can be sold at. In contrast, traders must pay a commission or brokerage fee for each futures transaction they enter into.
Because of the high volume of trading FOREX transactions are almost instantly executed. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade. This is not necessarily the price of your transaction.
The FOREX is less risky than the futures market because of built-in safeguards in the trading system. Debits in futures are always a possibility because of market gaps and slippage.
However, if you are open to some good advice , it is a very good idea to study the futures and markets and have a good idea as to how they work before throwing real money at them. This is easy to accomplish as most online brokerage firms provide practive accounts that allow you to "paper trade" the markets. This lets you become comforable with the procedures and trading software before you put your money at risk. It's also fun to see how well you trade.
Trading FOREX and futures are demanding trading activities. The attraction is that if one becomes a skilled trader it is like owning your own printing press. Money can be made at in amazing amounts.
You will find additional information about the futures markets at
Commodity Futures Trader
Phil has traded forex for the past 15 years. He prefers trading forex rather than commodity futures for the reasons explained below.
