Trading Futures vs Trading Forex

Trading FuturesTrading Futures vs Trading Forex

Trading Futures vs Trading Forex will be the topic of this post.  In the past, I have traded both products, and for awhile I preferred trading Forex, so I gave up Trading the Futures market for many years. Then the CFTC banned the Forex broker that I was using that helped me generate my best returns. I now faced a difficult decision in my trading. Do I give up or look for the best solution for myself?  As you can guess I found what I believe to be the best solution for Traders that live in the United States.


The Pros of Trading Futures

The first pro that comes to mind when trading Futures is there is one central exchange where the contract will be traded. What this means, in my opinion, is that the futures market is a much more fair environment.  Every trader looking to trade a futures contract can see the same price for the contract that is traded.  A central exchange promotes a fair marketplace, unlike some shady Forex brokers that requote prices. Trading Futures has a lower transaction cost than trading Forex which makes this my second pro.

Lower Transaction Cost Trading Futures

Trading futures has a lower transaction cost for at least U.S. retail traders. Here is an example The Eur/Usd currency pair has an average pip spread of 1 – 2 pips from the two U.S. regulated brokers and Oanda. You can click on each of the brokers as I have provided a link showing the spreads.  Both Brokers offer zero commissions, and this sounds great at first. When you consider the cost of the spreads you will see how this is not so good.

I will use one standard lot (100,000) for this example. To enter and exit a trade the trader must pay the spread. In this example using a 1.2 spread would be $12 to enter and $12 to exit.  The total transaction cost would be $24. Now, let’s compare this to trading the 6E contract.  The 6e contract is the same as the Eur/Usd except each tick is equal to 1/2 pip. Ninjatrader charges $2.24 to enter and $2.24 to exit plus the spread which is one tick.  The total transaction cost would be Commissions = $4.48, and tick cost = $6.25 The Total transaction cost would be $16.98 round turn.  Transaction cost is 30% cheaper trading Futures vs trading Forex. 

Trading Futures Using Price Charts vs Trading Forex

If you are looking to trade Futures and you are wondering if the same patterns work the answer is yes.  Below is a picture of the 6E futures contract and next to it is a picture the Eur/Usd.

As you can see by looking at both price charts the charts look almost the same.  A trained eye can spot slight differences that are very minor. The best Examples are most often seen at the wicks of the candle. Some wicks are shorter while others may be a bit longer. This is no different than if you were looking at a chart of the Eur/Usd using two different brokers. When you look at a Futures contract with using two different brokers the charts should look identical.  This helps to give traders a piece of mind that the broker is not stop hunting their trades.

Trading Futures vs Trading Forex Video



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