Forex Benefits Over Futures
By: Ron King
From Agricultural Products To Financial Instruments
The origins of the modern futures market lies in
the agriculture markets of the 19th century. Farmers started selling
contracts to deliver agricultural products at a later date. This
was done to anticipate market needs and stabilize supply and demand
during off seasons.
The current futures market has moved far beyond
agricultural products. It is a worldwide market for all sorts
of commodities, including manufactured goods, agricultural products,
and financial instruments such as currencies and treasury bonds.
When the futures market is played by speculators,
the actual goods are not important because there is no expectation
of delivery. Rather, it is the contract itself that is traded,
the value of which changes constantly throughout the day as expectations
change regarding the value of the commodity itself.
Win Or Lose
In every futures contract there is a buyer and a
seller. The seller takes the short position and the buyer takes
the long position. The futures contract specifies a buying price,
a quantity and a delivery date.
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. Futures accounts are settled every
day.
At the end of the contract period, the contract
itself is settled. The final contract buyer can now take delivery
of his truckload of whatevers. Of course, he may opt to just start
the process all over again by writing up a contract to deliver
his whatevers on a certain date at a certain price.
FOREX Benefits
The foreign exchange market (FOREX) has several
advantages over the futures market.
More Liquid. FOREX is an extremely liquid market.
As the largest financial market in the world it dwarfs the futures
market in daily exchanges. This means that FOREX stop orders can
be executed more easily and with less slippage. 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 arise rather
than waiting for the market to open.
Commission-Free. FOREX transactions have no commissions.
Brokers earn money by setting a spread -- 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.
Instant Transactions. Because of the high volume
of trading, FOREX transactions are executed almost instantly.
This minimizes slippage and increases price certainty. Brokers
in the futures market often quote prices reflecting the last trade
-- not necessarily the price of your transaction.
Safeguards. Final prices in futures are always a
little uncertain because of market gap and slippage. The FOREX
is less risky because of built-in safeguards in the trading system.
About the Author:
Ron King is a full-time researcher, writer, and
web developer. Visit
http://www.forex4u-now.com
to learn more about this fascinating trading vehicle.