Choosing between forex and futures trading requires careful consideration. While both markets offer opportunities for traders, they also carry risks. In addition, they operate differently.
When we talk about futures trading, we are referring to perps, or perpetual futures, which are different from traditional futures contracts. To help you decide which market to invest in, we take a deep dive into forex vs futures trading, liquidity, trading hours, and risks.
Futures Trading at a Glance
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Perpetual futures let traders speculate on the price of an underlying asset without owning it directly. Unlike traditional futures, perps do not have a fixed expiration date.
Perpetual contracts are especially common in cryptocurrency trading. For example, you can trade a BTC/USD or BTC/USDT perpetual contract without buying Bitcoin directly. You can go long or short depending on whether you expect the price to rise or fall.
Forex vs Perpetual Futures: The Differences
Let’s now take a look at some of the major differences between forex and futures trading.
Leverage
Both markets involve leverage, which lets traders control positions larger than the amount available in their trading accounts. For example, if a broker offers 10:1 leverage, you can open a trade worth $1,000 with $100.
However, leverage also increases exposure. Small shifts in the forex market or cryptocurrency perpetual futures can lead to substantial losses.
Trading Costs
Trading forex involves several expenses, such as spread, commission, and swap fees. You might also incur extra charges for currency conversion.
Perpetual futures also involve charges, such as trading commissions, funding payments, and network fees. Some decentralized perps platforms, if you visit flpp.io, also charge holding fees while a leveraged position remains open.
Therefore, when comparing forex vs futures trading, you should evaluate total trading costs, rather than focusing only on the potential gains.
Funding Rates vs Forex Overnight Costs
When comparing forex vs futures trading, you must have a solid understanding of these two costs and how they come into effect.
Perpetual futures commonly use funding payments to help keep the contract price close to the underlying market. When the funding rate is positive, one side of the market generally pays the other. The direction of payment reverses when the funding rate is negative.
Forex positions held overnight can also incur financing-related costs, commonly referred to as swaps or overnight financing. Although funding rates and swap fees are not technically the same thing, they share an important practical implication: holding a leveraged position costs money.
Market Hours
Forex is generally available around the clock during the global trading week, with activity moving between London, New York, Tokyo, and Sydney windows.
Cryptocurrency perpetual futures, by contrast, are commonly available 24/7, including weekends. This provides considerable flexibility. As a result, if you are seeking around-the-clock trading opportunities from January through December, futures trading is the better option.
Which Market Is Better for Beginners?
Finishing up, there is no perfect answer to this question. Many beginners may find forex trading easier because of the enormous amount of educational material available. However, it doesn’t mean risks are eliminated. So, the best approach is to first identify your trading goals, then learn the basics, and finally, compare the risks.