With the advancement of time, there are many investment options are available where you invest your money and make profits. An investment method is considered as good when there is less risk of money and high return rates, but it is very difficult to find an investment option like this. So in this article, you will get to know about two of the best investment methods which are forex and futures. These two investment options are preferred by many experienced investors.
Difference between forex and futures is that futures contract is an agreement between a buyer and seller to buy or sell a particular asset at a given price on a specified date. On the other hand, forex is buying, selling a currency against another country’s currency. Now the big question that comes in everyone’s mind is which is the better investment option. Well, it depends on the budget of an individual and what type of trader he is.
If you have a low budget then forex trading is best for you because it requires less investment in comparison to futures. If you want to know more, then down below is a detailed explanation of both forex vs futures day trading. So without wasting any time, let’s jump into the main deal.
Forex Trading
Forex trading which is also known as foreign exchange trading is the biggest currency market in the world. In simple words, it is a decentralized global market where all the currencies of different countries or you can say all the world’s currency trade. In 1875, foreign exchange trading is started and it is also considered as an important event. The good thing about forex trading is that you can use a demo account if you are new to get more knowledge about it. Demo accounts are very useful and there are three main purposes of a demo account.
The first purpose of a demo account is that it provides general information to beginners and help them understand the market’s concepts better. The second purpose is that if anyone wants to try some new strategies, then demo accounts are very useful to avoid any loss. The third purpose is that a demo account can help in identifying the services of a broker before actually trying it.
Though a demo account can give some idea but it is not that effective, and if you want to gain some experience then micro trading is the perfect option and it only requires 100$ to sign up and start trading. This is an advantage of forex trading because brokers in futures demand heavy deposits around 10000$ to start.
Trading futures vs forex
Pros Of Forex Trading
1- Leverage- Profit chances are high because it provides access to high leverage positions.
2-More Opportunities- Forex trading only closes on Saturdays and Sundays and remains 24/7 open in other weekdays, increases the trading opportunities.
3- Liquidity- Liquidity in the forex trading market is high in comparison to futures and also commission rates are less.
Cons Of Futures Trading
1- Problem for Small Traders- All the big institutions like banks are trading in it and it becomes tough for small traders to make high profits because they have less information and it is difficult for them to influence price movements.
2- Volatile- Forex trading is volatile and people who hope for short term profits may face this, results in making their strategy unprofitable.
Futures Trading
As mentioned above, a futures contract is an agreement between the buyer and seller to trade different assets at a given price in a specified time and the assets that are traded in futures are known as derivatives. The asset can be any commodity like gold, oil, etc. The future trades are generally used by investors to reduce risk and it also has a date of expiry. The good thing about this is that there is no chance of any doubt or confusion because both parties discuss everything related to the trade.
Trade currency specification, expiration day, last trading day, delivery month are some important terms. Another important point that everyone should know is that the prices changes every day in futures and all the things related to prices must be discussed daily to avoid any confusion. Everyone knows that the market is uncertain and changes frequently and this is the main reason why a lot of investors go with the futures trading option because this is the best platform to avoid the risks and reduce the chances of losses.
Pros Of Futures Trading
1- Management of Risks- One of the best advantages of futures trading is risk management and the interesting thing about futures is that the purpose it came into existence is risk management. It reduces the risk and the uncertainty of the market won’t affect you.
2- Faster money- Another great advantage of futures is that people who have enough experience and proper knowledge and judgement of the market can make money faster.
3- Efficient- The efficiency of the futures market is high and in comparison to other options it is a fair market.
Cons Of Futures Market
1- Leverage Problems- Movements in the price at the market are sometimes very rapid and prices in the contract can rise and fall daily. So the leverage that is decided in the contract can create problems.
2-Time Issues- The futures contract has a fixed date of expiry and the prices become less attractive as the expiry date comes, which may result in the contract’s expiration.
Conclusion
Forex and Futures both have their pros and cons, and if you are planning to invest your money, then it is very important to plan everything and research everything properly. Another thing is that before coming to any platform, make sure to educate yourself and get as much knowledge as you can. Both the platforms are used by a lot of investors and you must identify your needs before entering any of the platforms.
One thing that you can do to increase the chances of being profitable soon is get an experienced mentor that can share real-life examples and tips and you also have to be patient because it will some take to understand the market better.
