FOREX Trading
• What Is
FOREX?
• FOREX
Or Futures?
• FOREX
Or Stocks?
•
FOREX Trading for
Beginners
• FOREX
Terms To Know
•
Preparing for FOREX
Trading
• Is
FOREX Trading Risky?
•
The Philosophy of FOREX
Trading
•
FOREX and Fundamental
Analysis
•
Tools for FOREX Trading
•
Trading Strategies for
FOREX
• Trading Systems
for FOREX
•
Reading and Understanding
FOREX Quotes
•
FOREX Profits and Losses
•
FOREX Technical Analysis
Part 1
•
FOREX Technical Analysis
Part 2
•
FOREX Trading Brokers
• The
FOREX Margin
•
What Are Currency Options?
•
What Are FOREX Signals?
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Online FOREX Trading
FOREX or Futures?
When it comes to investing money, there are numerous options. FOREX and Futures
trading are just two of those options, but which one will be best for your
investment dollars? Let's compare the two options:
FOREX is the Foreign Exchange Market. Unlike Futures, the FOREX market is
easier to liquidate. More money is exchanged on the FOREX market than the
Futures market on a daily basis. Because of this, there is less slippage,
and buy and sell orders are executed much faster.
Today's Futures market has been taken from the 19th century, when crop farmers
sold contracts to investors, and delivered their goods at a later date. As
it is today, this was an anticipation of the needs of the market, and it
helped to stabalize supply and demand throughout the year.
Then, in the 19th century, Futures only covered crops. Today, it includes
more than crops, including agricultural goods, manufactured goods, and even
some financial instruments, such as currencies and treasury bonds. When you
buy a Futures contract, the contract lays out what price will be paid for
the product, and the specified date of delivery of the product.
Of course, the product isn't that important, simply because there is no
expectation of delivery. You aren't going to receive truckloads of corn on
your door step. Instead, you will trade the Futures contract for money. Remember,
the value of the contract changes on a daily basis.
As with other types of stock, in Futures, there is a buyer and a seller.
A short position is taken by the seller, and a long position is taken by
the buyer. The buying price, the quantity, and the delivery date are all
stated in the contract. Here is an example of how it works:
A crop farmer agrees to sell 1000 bushels of corn to a cow feed manufacturer,
at $5.00 per bushel. The daily price of corn falls to $4 per bushel, and
the corn farmer's account is credited with $1000 ($5 - $4 x 1000 bushels
of corn). The cow feed manufacturers account is debited that same $1000.
This is done daily, as the price of the corn changes. If it was the opposite
way, and the price rose one dollar, the cow feed manufacturer would receive
the $1000, and the corn farmer would lose that $1000.
Even though the accounts are settled each day, there is an ending date for
the contract. Using our example, if the price remained at $4 per bushel of
corn, the farmer would have gained $1000 on the Futures contract. If the
price of corn had risen $1, to $6 per bushel, the buyer (the corn manufacturer)
would have made $1000.
Let's say that the corn farmer "won." Now, the farmer must sell the corn
on the open market at $4 per bushel, and the cow feed manufacturer has the
option to buy the cow feed manufacturer can now buy that corn, at the cheaper
price, on the open market, so that everyone walks away happy. What you must
realize here, however, is that the cow feed manufacturer is still actually
paying $5 per bushel, even though after the contract has ended, he's only
paying $4 per bushel on the open market.
The FOREX market is open five days each week, but unlike the stock market,
it operates twenty-four hours per day. Futures markets, however, are only
open for seven hours a day. Investors in FOREX don't have to wait to take
advantage of good deals until the market opens, because it is always open.
While there are fees associated with buy and sell orders for both FUTURES
and FOREX, they way those fees are calculated is quite different. For instance,
a FOREX broker sets a spread, which is the difference between the price that
currency can be bought at, and the price the currency can be sold at. With
Futures, however, investors pay a commission for each transaction.
With FOREX, there is much less slippage than with Futures because FOREX trades
can happen almost instantly. In the Futures market, however, prices are quoted
and based on the last trade of a specific commodity, not on the price that
the commodity was being bought or sold at when you made the transaction.
Most traders agree that FOREX is less risky than Futures and that there are
safeguards in place, while with Futures, there is always the possibility
of slippage and market gaps.
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