Trading Forex vs Trading Currency Futures

Trading Forex vs Trading Currency Futures

Trading forex vs. trading currency futures, do you know the difference between the two? What about similarities? Do they have any at all?

In this week’s video, we will discuss six key differences between trading forex vs. trading currency futures. And although they do have their differences, trading forex vs. trading currency futures can be similar in a couple of ways, which we will also cover.

So let’s jump in.

You will notice the first difference between trading forex vs. trading currency futures when you are looking at a price chart. The forex market trades 24 hours a day, five days a week. While the futures market does trade five days a week, it only trades 23 hours a day. The futures market closes each day at 5 pm EST for an hour and reopens at 6 pm EST. During this one hour gap, you can see a small difference in the price charts.

Difference number two when we are talking about trading forex vs. trading currency futures is how you trade them. When trading the forex market, you are trading between banks and liquidity providers, rather than a centralized exchange. This method of trading results in price charts varying between brokers. The currency futures, however, are traded on a centralized exchange at the CME. Trading on a centralized exchange allows all price charts to show the same daily high, daily low, and bid and ask quotes.

Terminology is the third difference you will see between trading forex vs. trading currency futures. Forex traders use the term pips to describe a movement in the forex market, and currency futures traders use the term tick or ticks to describe the smallest change in the price for all future contracts. While this difference may seem rather insignificant compared to the others, it’s important to understand the terminology of the market you are trading.

The fourth difference between these two markets is margins. The forex market has a set margin amount to open a new position. To give you an example, as I’m writing this, the margin to open one standard lot on the EUR/USD is $2,241 and to open a currency futures trade on the 6E contract, which trades like the EUR/USD, the margin is $2,200. If you chose to day trade the 6E contract, the day trading margin would only be $500. As you can see, the futures market has a considerable advantage over forex for day traders.

Minimum price fluctuation is the next difference between trading forex vs. trading currency futures. The minimum price fluctuation in the forex market is 1/10th of a pip, while in the currency futures market 6E contract, one tick equals half of one pip.

The sixth and the final, difference we are going to discuss is contract expiration. When you are trading the forex market, you can hold a position as long as you have the available margin to cover the position and the loss of your trade. However, in the currency futures market, the contracts expire quarterly. The contracts expire in March, June, September, and December. Those who are trading currency futures must close out their trades before the contract expires.

Though there are several differences between trading forex vs. trading currency futures, you will find similarities as well.

Let’s begin with price charts again. If you look at a chart of the EUR/USD and a chart of the 6E currency futures contract, you will notice the daily ranges are very close. Most of the time, the daily range between the two charts will be within two pips of each other. This amount is approximately the same amount forex traders may notice between different brokers.

Another similarity between trading forex vs. trading currency futures is that day traders and swing traders can use a similar, if not the same, trading strategy to trade both forex and currency futures. In the video below, I will give you an example and show you how breakouts could have been traded on the EUR/USD and the 6E contract at the same time during the day.

Make sure to watch this week’s video for a chance to see, in action, the differences as well as the similarities of trading forex vs. trading futures.