Forex vs. Futures

Basically, trading currencies can be done in two major fashions. One that the most people are familiar with is Forex, the network of big banks, brokers and their intermediaries that cover the globe and offer twenty four hour trading. The other option is trading currency using futures contracts which are heavily regulated instruments by CFTC and traded through Chicago Mercantile Exchange (CME).

Both of these markets have pros and cons, and the main factor to determine which one you should use depends on what kind of trader you are, so please consider the notes below:
1st Factor – Ease of Use
Opening a trading account with FOREX broker is much faster and easier than with Futures broker on the account that many of them are not as heavily regulated (not all of them are members of National Futures Association, industry self governing body). That might carry some risk, but with a plenty of information on the internet about different FOREX brokers that risk should be minimal. Furthermore, helping guides and tutorials about different FOREX trading platforms are usually much more abundant than on futures trading platforms.
2nd Factor – Risk Level
In Futures market it is very much standardized how much you can risk, and your margin requirement can range around 5%. For those that want to be more aggressive, Forex present opportunity to tailor their risk. Some Forex brokers offer 1:500 leverage which comes to only .2% margin requirement. Thus, for the same move in currencies, your Forex account can go up and down by over 10 times more than your Futures.
3rd Factor – Hours of Operation
Many Forex brokers loud how they are 24 hour marketplace while futures market is only 7. That is actually not true as CME though its GLOBEX marketplace actually trade currency around the clock just as well as Forex does. So, actually if you plan to trade during different shifts, you can use both markets.
4th Factor – Cost of Doing Business

If your broker is a market maker (see previous post about brokers), then you have no commissions, but your spreads can be considerable and extremely costly, much more than any normal commission paid. However, higher liquidity that exists on Forex will also work toward lower slippage for big traders. So the true cost of trading depends more on the selected broker and not the marketplace.

Maybe the best way to conclude this comparison is to state that for someone just starting out Forex presents ideal tools to learn how to trade currencies. They can open a valid trading account with only few dollars. As they learn and grow, then they can decide weather futures or ECM Forex broker would work better for them.