Forex Trading Vs Futures Trading 2024: What’s The Difference?

Forex trading and futures trading are both popular forms of using financial markets to make a buck. Many smart investors are taking advantage of forex and futures trading to make a strategic profit with their investments. Both types of trading involve education and strategy, and we’ll break down the differences between the trading strategies below so you can feel prepared before beginning your journey into trading in both realms and financial markets.

Forex Trading Details

Forex trading involves using a different type of financial market to conduct your trades and make a profit. It stands for foreign exchange trading. Many investors have started trading Forex and have begun a journey to successful investing.

What is Forex Trading?

In a nutshell, Forex trading involves currency trading or trading one currency for another (this couple of currencies is called a currency pair). To trade on the currency market profitably, you must buy foreign currency at a low price and capitalize on the future growth of the currency by trading it in at a higher price later. This “exchanging” of currencies using currency pairs is the basis of Forex trading.

Pros & Cons of Trading Forex

Trading Forex is certainly full of risks since your Forex trades are directly connected to the performance of a certain currency. Foreign exchange rates play into the prices you’ll pay, and a country’s currency might fluctuate depending on political and economical events, which aren’t always able to be predicted well. However, this risk might provide ample opportunity to dive into that currency risk and pit one currency against the next to make a profit. 

We’ve broken down some of the main Pros & Cons below:

Pros:

• Currencies have the possibility of changing in price quickly
• Currencies are directly related to the economic and governmental temperature in their country
• The Forex market is pretty straightforward for beginners

Cons:

• Investing in currencies is risky
• Exchange rates are constantly changing
• Unknown events might change the currency’s value abruptly

How to Trade in the Forex Market?

To trade on the Forex market, you’ll typically want to start with a Forex broker. Forex brokers have clearances to buy and sell currencies on the Forex market at need. Trading Forex involves strategy, so make sure you educate yourself on the history and reliability of the different currencies you’d like to trade. After you find a broker and decide which of the major currencies you’d like to start with, you can begin trading during trading hours. 

Read More: Best Forex Trading Apps 2024

What is Futures Trading?

Futures trading is another type of trading that involves a contracted and agreed-upon future price at which to buy different asset classes or stocks. 

What is Futures Trading?

Futures trading is kind of like gambling. It involves choosing a set price for a commodity (like crude oil or gold) that you’ll pay at a later date. Since you don’t know the conditions of the future (will the price of that asset go up or down?), it’s kind of a gamble. Once the later date you agreed upon comes, you’ll pay the set price for the futures contract. 

Pros & Cons of Trading Futures

Futures traders definitely have to be comfortable with some risk. You can’t always predict the movement of the price of an asset, and this risk of the unknown contributes to the possibility of losing money on futures trades. On the other hand, future trading can be quite lucrative when you play your cards right. A trading strategy can be used to educate yourself on price movements and accurately predict which futures prices will bring you the most return. We’ve broken down some main Pros & Cons of futures trading below:

Pros:

• Strategy can be learned to capitalize on predicted movements of investments
• Geopolitical factors can sometimes be predicted and capitalized upon

Cons:

• The complexities of this trading strategy can be confusing for beginners
• Greater possibility of losing money with this added nuance of trading at a future date

How to Trade in Futures Markets?

To trade in the futures market, you have to have the right account. You can use online brokers that support futures trading and come up with a viable trading plan to only trade within your risk tolerance and budget. Depending on your trading strategy and experience, some brokers will let you trade on a margin up to a certain limit. 

Forex vs Futures: The Difference

There are many differences between the way investors trade Forex and the way they trade futures. We’ve broken down a few differences below:

Different Concepts

Forex is traded on a certain market, and futures are more of a concept of trading. You can actually trade Forex on the futures market, predicting the price of currency futures. Currency futures trading is a way of synergizing both these concepts of currency pairs and the futures market. If you’re interested in testing the waters of both concepts, you might try to trade Forex on the futures market. Currency futures provide the best of both worlds. 

Forex Involves Only One Market

Futures trading is a larger, more encapsulating form of trading that could include many markets and investment options. To trade Forex, on the other hand, you stick to the Forex market and use a dedicated Forex broker to help you trade currencies. In this futures vs Forex differentiation, one might argue that futures trading has more opportunities for the trader.

Different Timing

The timing of these two types of trading should also be pointed out. Forex and futures markets don’t both include instantaneous trades. To trade Forex, you can trade currency pairs now, or trade currency futures. With futures, your actual trade will happen on the stock market in the future. As far as this Forex and futures comparison, instantaneous trading timing can be less risky than the alternative.

Forex vs Futures: The Similarities

Trading on the Forex market and trading futures have some similarities. We’ve outlined a few below.

Both Involve Risk

With both trading Forex, futures, and really any type of investing, there is risk involved. Both of these forms of investing are for more advanced traders because the risk involved if the investor doesn’t educate themselves is great. 

Possible on the Chicago Mercantile Exchange

It is possible to trade currency, futures, and many more commodities in the CME group. You can also trade Forex over the counter, but both currency and futures can be traded on the CME group.

Both Include Market Makers

Market makers are institutions adding in trades to ensure liquidity in markets. Both trading Forex and futures involve the presence and activity of market makers. 

Both are Less Traditional

In the end, both trading Forex and futures are a little bit more complicated than more straightforward investments. Instead of investing in something like gold, or a company you’ve researched, these investments entail a future price of a commodity or the exchange rate of a currency. Both of these factors can be multifaceted.

Forex vs Futures: Which One Should You Choose?

As we mentioned, you can trade futures and Forex at the same time, on the currency futures market. However, you might want to choose one or the other. If you’re just getting started with trading, 

Forex can be a more predictable, beginner-friendly place to start. Forex traders can decide between so many currency pairs on the Forex market. In the world of trading, Forex markets are a great place to start since they involve a pretty straightforward process. Forex brokers can allow you to choose a currency to trade and you can trade again when the currency is worth more to make a profit. This concept is pretty easy to understand, and it makes the Forex market a great place to start. 

Futures markets are a better place for more advanced traders. Since futures contracts are involved when you trade futures, it can be a bit more complicated. The concept of drawing up a futures contract involving putting a certain price on a commodity at a future date is a bit of a gamble when it comes to technical analysis and the complexity of the futures market. 

The Top 2 Trading Services

eToro

As far as futures go, eToro allows investors to trade on the VIX index to buy into futures contracts. You cannot manually trade futures positions. Additionally, eToro does not allow its customers to trade on the Forex market at this time. They are best for beginner investors who want to learn to trade at a low-risk level. 

Interactive Brokers

Interactive Brokers provide super low commissions on their futures contracts, and they provide a few more manual trading features than eToro. 

As far as trading on the Forex market, International Brokers does offer trading on the spot Forex market, which involves unregulated trading. If you want to trade spot Forex, this is one of the easiest places to do it. The spot market is a highly liquid cash market that allows investors to trade Forex easily and frequently. As far as spot Forex brokers go, we’d highly recommend checking out Interactive Brokers. 

Final Thoughts

Within the Forex vs futures conversation, you’ll have to decide which form of trading works best for you and your personal situation. You could also decide to combine Forex and futures trading by trading currency futures. We’d recommend starting to trade Forex if you’re a beginner (the spot Forex market is a great place to start). However, if you’re a more advanced trader then the futures market might be a great next step for you. Whatever your decision, the most important step you can take as an investor is to educate yourself on the type of trading you want to start, and the specific investments you’re considering.

Frequently Asked Questions (FAQs)