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This article tries to highlight why FOREX is considered a better
option for investors when compared to Futures Trading.
You pay ZERO commissions and exchange fees!
In the futures market, you must pay commissions and exchange fees.
In the FOREX market, you pay NONE of that. No commissions. No
exchange fees. Not one red cent. How can FOREX do that? Simple.
Because you deal directly with the market maker via a purely
electronic online exchange, you eliminate both ticket costs and
middleman brokerage fees. There is still a cost to initiating any
trade, but that cost is reflected in the bid/ask spread that is
also present in futures trading. And, because the FOREX trading
platform offers instant execution off firm two-way prices, you
never have to worry about price "slippage" or bad fills which
happen all too often in other financial products. To see for
yourself how these benefits work, open a free demo account.
You get more leverage than futures
The sheer size of the currency market (46 times greater than all
futures markets combined) and the greater price stability allow you
to trade with a much higher degree of leverage than is typical with
futures contracts. Plus, you are able to select the degree of
leverage that you wish to employ in trading. Unless you specify
otherwise, FOREX sets your leverage level at FOREX's most lenient
requirement. The actual margin requirements for leverage vary with
account size.
For example, if your account has $30,000 in it, then the margin
requirement is $1,000 for every position (approximately equal to
$100,000 worth of currencies). Thus, the margin requirement is just
1% of the total value of the currencies traded - a 100:1 ratio.
Click here for a demo.
Your risk is strictly limited
With FOREX, you can NEVER have a debit balance! In the event that
funds in your account fall below margin requirements, the FOREX
Dealing Desk will simply close all open positions. That means that,
even if you are dead wrong and there is a catastrophic market move
against you, you can never lose more than the amount of money you
have in your account. In addition, by using stop loss orders that
are guaranteed by FOREX, your risk can be further limited and
defined. That provides you with tremendous peace of mind. See for
yourself by making a few risk-free virtual trades in your FOREX
demo account.
You get instantaneous execution and firm prices
The futures market does not offer instant execution or price
certainty. Even with electronic trading and limited guarantees of
execution speed, the price for fills on market orders is far from
certain. In the futures market, the prices represent the LAST
trade, not necessarily the price for which the contract will be
filled. With FOREX currency trading, in contrast, you get
instantaneous execution and price certainty. On the FX trading, you
trade directly off real-time streaming prices. Your trades are
filled instantly. There is no discrepancy between the displayed
price and the execution price. This holds true even during volatile
times and fast moving markets. Experience the benefits of instant
fills and guaranteed prices by opening a free demo account.
You get maximum liquidity
Due to its enormous size (46 times bigger than all futures markets
combined), the currency market is the most liquid market in the
world. The spot currency market is a $1.4 trillion daily market,
making it the largest and most liquid market in the world. This
market can absorb trading volume and transaction sizes that dwarf
the capacity of any other market. If you compare this to the $30
billion per dayfutures market, it becomes clear that the futures
market provide only limited liquidity. The currency market, in
contrast, is very liquid, meaning positions can be liquidated and
stop orders executed without slippage. In just a few minutes, you
can open a demo account and see how this works.
You can easily trade 24 hours a day
Unlike most futures exchanges, the currency market is a seamless,
24-hour market. At 5 p.m.Sunday, New York time, trading begins as
markets open in Sydney and Singapore. At 7 p.m. the Tokyo market
opens, followed by London at 2 a.m., and finally New York at 8 a.m.
As a trader, this allows you to react to favorable or unfavorable
news by trading immediately. It also gives you the added
flexibility of determining your trading day. By comparison, the
currency markets in the United States, such as the Chicago
Mercantile Exchange and Philadelphia Exchange, have regulated
hours. The CME, for instance, opens at 8:20 a.m. New York time and
closes promptly at 2 p.m. Therefore, if important data comes in
from England or Japan while the U.S.futures market is closed, the
next day's opening could be a wild ride. (Overnight markets in
futures currency contracts exist, but they can be thinly traded,
not very liquid and difficult for the average investor to access.)
Open a free demo account and get the ability to trade whenever you
want.
You don't worry about rolling over your positions
With FOREX, open positions are rolled over automatically every two
days. As a service to you, at 5 p.m. ET FOREX automatically rolls
over all your open positions (swaps the trade forward) to the next
settlement date two business days in the future. As is true with
futures, there is often a carrying cost associated with rolling
over a position. Moreover, currency positions sometimes can
actually make you money on the rollover. That is because your
profit/cost is determined by the difference in interest rates
between the two currencies. Thus, if you are long the currency with
the higher interest rate in the pair, you will actually gain on the
spot rollover through the premium relationship of that currency
relative to the short currency. The amount of the gain is
determined by the interest rate differential between the two
currencies, and fluctuates day-to-day with the movement of prices
A Primer on the FOREX Market
With the increasingly widespread availability of electronic trading
networks, trading on the currency exchanges is now more accessible
than ever. The foreign exchange market, or FOREX, is notoriously
the domain of government central banks and commercial and
investment banks, not to mention hedge funds and massive
international corporations
At first glance, the presence of such heavyweight entities may
appear rather daunting to the individual investor. But the presence
of such powerful groups and such a massive international market can
also work to the benefit of the individual trader. FOREX offers
trading 24-hours a day, five days a week, and the daily dollar
volume of currencies traded in the currency market exceeds $1.4
trillion, making it the largest and most liquid market in the world
Trading Opportunities
The sheer number of currencies traded serves to ensure a rather
extreme level of volatility on a day-to-day basis. There will
always be currencies that are moving rapidly up or down, offering
opportunities for profit (and commensurate risk) to astute traders.
Yet, like the equity markets, FOREX offers plenty of instruments to
mitigate risk and allows the individual to profit in both rising
and falling markets. FOREX also allows highly-leveraged trading
with low margin requirements relative to its equity counterparts.
Perhaps best of all, FOREX charges zero dealing commissions!
Many of the instruments utilized in FOREX--such as forwards and
futures, options, spread betting, contracts for difference, and the
spot market--will appear similar to those used in the equity
markets. Since the instruments on the FOREX often maintain minimum
trade sizes in terms of the base currencies (the spot market, for
example, requires a minimum trade size of 100,000 units of the base
currency), the use of margin is absolutely essential for the person
trading these instruments.
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