When most of us think of forex trading, we are really thinking about spot trades, but there is actually another form and that is called forex futures. There are some differences between the two, and advantages and disadvantages to each method.
With spot forex trading you are actually buying currency at the time of the trade. Forex futures are agreements in the form of a contract to buy currency at a specified date sometime in the future. So with futures trading you don’t actually own anything at the time of the trade.
One big advantage to spot forex trading is that currencies can be traded twenty four hours a day on the open markets. It is a huge market with over a trillion dollars worth of currency changing hands ever day. Forex futures trading takes place on established exchanges like the Chicago Mercantile Exchange. Trading can only be done during trading hours on the exchange and there are far fewer trading opportunities than there are on the open market.
Another drawback to futures trading is that you have to pay a commission, whereas on spot trades you just pay the spread, or the difference between the buying and selling price.
There can be some advantages to forex futures trading as well. It can be used for hedging on potential currency fluctuations. For example exporters who get paid in foreign currencies may want to lock in a particular currency rate to protect themselves against potential negative impacts due to fluctuations in foreign currency.
Another potential advantage to forex futures trading is that the trades are regulated by an established exchange and there are standard contract terms that are used. This can give more protection as well as help to simplify transactions.
There is also the potential to use leverage to a greater affect with futures forex trading. You may be able to realize larger profits, but also keep in mind that you may also stand to see bigger losses as well.
Source by Jeremy Waller