Global foreign exchange is the largest and most active financial market in the world. Forex traders worldwide trade actively around the clock, exchanging $1.9 trillion daily.
As outlined below, the benefits of forex over currency futures trading are considerable.
More Volume = Better Liquidity. Daily currency futures volume on the CME is just over 2% of the volume seen every day in the forex markets. Incomparable liquidity is one of the many advantages of forex trading.
Forex markets offer higher leverage and lower margin rates. When trading currency futures, traders have one margin rate for "day" trades and another for "overnight" positions. These margin rates can vary depending on transaction size. When trading cash markets, you have access to the same margin rates day and night.
Forex terminology and prices quotes are easily understood and universally used. Currency futures quotes are inversions of the cash price. For example, if the cash price for USD/CHF is 1.7100/1.7105, the futures equivalent is .5894/ .5897; a methodology followed only in the confines of futures trading.
Currency futures prices have the added complication of including a forward forex component that takes into account a time factor, interest rates and the interest differentials between various currencies. The forex markets require no such adjustments, mathematical manipulation or consideration for the interest rate component of futures contracts.
Forex markets offer tighter dealing spreads. By inverting the futures price to compare it to cash, you can readily see that in the USD/CHF example above, inverting the futures dealing price of .5894 - .5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip spread available in the cash markets.
Forex trades are commission free. While all traded financial instruments have a bid/ask spread, currency futures have the added baggage of trading commissions, exchange fees and clearing fees. These fees can add up quickly and seriously eat into a trader's profits.
