Forex or Futures – What’s Better to Trade? (2022)

In this article, I’d like to discuss a few differences between the futures and forex market as regards trading and potential returns. 

I had the idea for this article while looking over the results of the World Cup Trading Championships.

There are two divisions in the championships each year: futures and forex.

Significant performance differences

What caught my eye is the significance difference in returns. 

The second-place winner in the forex division wouldn’t have made it to the top five in futures trading.

Returns of the top five traders in the futures and forex divisions of the WCTC.
Returns of the top five traders in the futures and forex divisions of the WCTC. 

There were clear differences in returns not only in 2017, but also in all the previous years.

This raises two questions:

  1.  Are there better traders in the futures market?
  2.  Is it more difficult to trade forex than futures?

Are there better traders in the futures market?

Of course, you can’t always make generalizations, but I’d answer the question with a yes.

First of all – and I’ll address this point below – forex trading is more difficult than futures trading.

Experienced traders are aware of this and avoid the forex markets.

That’s why you find the more successful traders in futures.

This doesn’t mean there aren’t any good forex traders. But the traders with experience in proprietary trading, market making, etc., usually trade futures.

Is forex trading harder than futures trading?

The answer is a definite yes.

Forex is a much larger and more complex market than futures.

There are correlations among currencies and many other external influences that make forex trading more difficult.

There are many different interest groups and market participants.

The other main reason that professional traders concentrate on futures instead of forex is that forex isn’t traded on exchanges – it’s an OTC market. Every broker has different prices and charts.

As a result, you never know where the truth lies at a given moment, although in trading it’s crucial to have exact price data.

Just take a look at the different brokers’ charts in smaller timeframes and you’ll see the differences.

In addition, forex traders don’t have volume, order book, or time & sales to rely on, so they have less information at their fingertips.

The stops of select brokers are visible, which encourages other traders to go on fishing expeditions for them.

I’ve gotten to know several proprietary trading companies, and I’ve never seen a single forex trader in them.

On the other hand, a large number proprietary trading companies trade futures exclusively.

The advantages of forex trading

Despite the negative points mentioned above, forex trading does have some real advantages:

  • Entry barriers are extremely low.
  • There is no minimum margin for trading. 

This makes forex trading ideal for smaller accounts.

In addition, the amount you risk per trade can be precisely set – right down to the last euro. That’s not the case with futures trading.

When you trade forex, you don’t incur additional costs for real-time data.

The complexity of the forex market also has advantages.

You come to understand the world better, and, with time, you gain insight into macroeconomics, international trade, and politics.

So, in addition to trading, you learn a little bit about the world.

That’s only partially true for futures trading.

The forex market and common misperceptions

Forex is the largest market by volume, which makes it highly attractive for traders. It also draws people with a conflict of interest. In fact, there are more people with a conflict of interest in forex than in any other market in the world.

I’m referring to brokers, salespeople, and so-called trading coaches.

They all have a single goal: to make money. And that usually happens at the expense of others.

The forex market is popular among retail traders and is surrounded by many misconceptions.

You hear many false claims that benefit those who know how to exploit them.

One common assumption is that returns can only be improved by increasing the number of trades.

Because many people in the forex industry are paid based on volume, traders are told that they need to make a lot of trades to improve returns.

Forex day-trading is popular, but only a small number of traders are profitable. Money is made by brokers and others who convince people to open new accounts.

Any coach who promotes a forex or CFD broker has a conflict of interest.

Another widespread assumption is that because the forex market is open round the clock, it’s worth trading round the clock. 

But that’s not true.

As a rule, the only currency pairs suitable for active trading are those whose corresponding stock exchanges are open.

Seize trading opportunities at the right moment

If you look at the periods when volatility is the highest for the individual currency pairs, you’ll see they coincide with the opening hours of the corresponding stock exchanges.

Your goal as a trader is to identify trading opportunities, which are always created by volatility.

Of course, you might also find trading opportunities in, say, the EUR/USD currency pair at night, but you usually find better opportunities during the day.

As a trader, you always want to have a statistical edge.

It thus makes sense to trade the different currency pairs when the volatility is statistically the highest, particularly in forex day-trading.

Another claim you often hear is that institutional forex traders exclusively use charts.

That’s not true. The trading strategy of institutional traders is usually based 70 percent on fundamentals and only 30 percent on charts.

Most of the large hedge funds that trade forex take a global macro approach.

Fundamentals aren’t necessary for swing trading either, but over the long term, it’s fundamentals that drive price, not chart patterns.

A comparison of futures and forex: conclusion

Forex and futures are interesting markets to trade. Both offer many opportunities.

But the futures market is much better suited for day-trading. That’s why there are many more successful day traders in futures than in forex.

In addition, the potential returns are usually much higher in the futures market than in forex.

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