2020 05 29
One of the first and main questions we ask ourselves when we start trading and investing in the stock market is based on the markets in which we can operate.
In today’s article we are going to analyze the differences, advantages and disadvantages of two of the world’s used markets: the Forex market and the futures market. Which one should we stay with? Do we have to choose only one by force? In which of them is it better to start if we are novice traders?
Well, the truth is that no. Everything will depend on the objective that we pursue, the training that we have and of course the capital that we manage and the guarantees that we hope to obtain in our operations.
In the end, we, with our interests and needs, adapt to the movements and flow of the different markets, and not the other way around.
Still, we are going to talk about these two markets that we mentioned: Forex and Futures.
In the market known as Foreign Exchange or Forex, currencies move, and today, it is the most fluid in the world and the one that generates the most money. Arguably, it is the leading market for global movements due to its great liquidity and size.
Moreover, the futures market works through contracts of sale and goods within an agreed date in the future. In other words, the price and the quantity and expiration date of the matter with which it is negotiated are agreed upon in the present.
This market arose in the 19th century to protect farmers. Then, the periods of demand were concentrated in short periods (during the harvest) and the prices of their products throughout the year varied greatly. The “futures” market was thus born to try to give guarantees to this sector and at the same time create a price regulation system for everyone.
Currently, this market has derived in an organized system that tries to guarantee the conditions of contract negotiation, as well as its correct fulfillment.
Not necessarily. You can operate in both, since they are fully compatible. You should only take into account its characteristics and your circumstances and needs.
Forex is easier to start, (although it is not as well regulated as the futures market, keep this in mind).
We leave you a list of qualities of both markets to guide you based on the capital and training you have:
Advantages of Forex over Futures:
Forex is more liquid: that a market is liquid is very important, and here Forex is clearly ahead.Trading in Forex gives us great leverage, that is, you don’t need to invest a lot to get a good margin. In this way we can achieve more profitability in less time than investing in other products.Forex costs are usually lower than in other investment modalities and commissions are not charged in advance. Of course, you must spend time and effort looking for a reliable broker. Do not go lightly because in Forex there is more probability of encountering a scammer since, as we said before, it is a less regulated market.In Forex you can operate 24 hours a day, from any country and time slot in which you are.When trading in Forex, orders are executed very quickly and the price is maintained if the market is in normal conditions.You can control your risk limit: when opening a position, you have the possibility to set a loss limit to better control your risk level.
Advantages of Futures over Forex:
It is a safer market with stable trends.Except for the price, which is determined by market movements, the terms and characteristics of futures contracts are established through standardized, normalized and previously established measures.In the event that one of the parties breaches a contract, there is a chamber in charge of compensating the losses of the affected party.The one market that generates profits both during bullish and bearish trends.
As we have mentioned, the ideal is that you check through your own experiences which of the two best fits your profile, knowledge, capital and of course with your training.
At Trading and Stock Market for Clumsy we can help you acquire the necessary knowledge to trade both Forex and futures. Take a look at our courses and subscribe to the BPT Club for free to receive exclusive training content for members.