Forex vs futures trading: what’s the difference?
Heard a lot about forex and futures trading? Read on to find out the basics of forex and futures and how you can incorporate them into your trading strategy.
What’s the difference between forex and futures trading?
The difference is that forex trading involves buying and selling currency, while futures trading is a way to trade thousands of financial markets, such as forex, indices, shares, commodities and more.
So, you can trade forex futures or forwards and other derivative products, while you can trade futures on various financial markets.
With us, you can trade forex futures or forwards, spot forex, as well as forex options. To explain the differences between forex and futures trading, let’s break down each term below.
What is forex trading?
Forex trading – also called FX or currency trading – is the process of converting one currency, such as USD, into another, such as EUR.
This is the mechanism that underpins the global trade in goods and services. Banks, companies and individuals trade around $6.6 trillion in foreign exchange transactions every day. That equates to more than 2.3x the entire annual GDP of the UK.
As mentioned, you have a few different choices when it comes to forex trading. You can trade on the spot (cash) price, forex options or forex futures forwards. Regardless of how you want to trade forex with us, you’ll do so using US-listed futures or derivatives like spread bets and CFDs.
We explain all of these methods in detail below.
What is futures trading?
Futures trading is an agreement between two parties, a buyer and a seller, to exchange the underlying market for a fixed price at a future date. The buyer is obligated to buy the underlying market and the seller has to sell at or before the expiry of the agreement.
Futures are often used to hedge against expected exchange rate changes. For example, a trader might buy a certain number of EUR/USD forward contracts to lock in an exchange rate. That person will then be obligated to buy those USD when the contract expires – hopefully when the EUR's value has risen, but even if it has dropped.
We offer forex futures or forwards via listed futures, spread betting or CFD trading.
Learn more about futures trading
Forex vs futures: how to trade
You can trade forex and futures with us. Let’s look at how to do both.
How to trade forex
To trade forex with us:
- Open a US options and futures, spread betting or CFD trading accoun
- Pick the currency pair you want to trade
- Choose the way to trade your FX pair – futures or forwards, spot or options
- Place your trade
Learn more about forex trading
We offer three ways to trade forex:
- Futures (forwards): trade a specific currency pair at a set future date. Your choice of currency pair would depend on which currency you believe will strengthen against the other by the set date
- Spot trading: buy or sell forex ‘on the spot’. This means the exchange takes place at the same moment the trade is settled. Spot prices reflect the underlying market and have no fixed expiry
- Options: gain the right, but not the obligation, to buy and sell FX on a specific date in the future (called the expiry) at a specific price (called the strike price)
Note that listed future, spread bets and CFDs are leveraged products, which means that you’ll use a deposit to open your position – while still getting exposure to the full value of the trade. Trading on leverage can be risky, as it magnifies profits and losses, and you can lose more than your initial deposit.
Learn more about the impact of leverage on your trading
If you’re not ready to trade forex at spot or futures prices yet, we’ve also got educational resources like IG Academy with free courses on how to trade. Plus, we offer a spread betting adnd CFD trading demo account – giving you £10,000 in virtual funds to build your confidence in a risk-free environment.
| US options and futures account | Spread betting account | CFD trading account | |
| Spot forex | No | Yes, spot forex spread betting | Yes, spot forex CFDs |
| Forex futures / forwards | Yes, listed forex futures | Yes, spread bet forex forwards | No |
| Forex options | Yes, listed forex options | Yes, spread bet forex options | Yes, CFD forex options |
How to trade futures
To trade futures with us:
- Open a spread betting or CFD trading account
- Pick a futures market to trade
- Decide whether to go long or short
- Set your stops and limits
- Place your trade
- Monitor your position
CFD market
| Spot | Futures/forwards | |
| Shares | ||
| ETFs | ||
| Indices | ||
| Forex | ||
| Commodities | ||
| Bonds and rates |
Spread bet market
| Spot | Futures/forwards | |
| Shares | ||
| ETFs | ||
| Indices | ||
| Forex | ||
| Commodities | ||
| Bonds and rates |
US-listed futures market
| Spot | Futures | |
| Shares | ||
| ETFs | ||
| Indices | ||
| Forex | ||
| Commodities | ||
| Bonds and rates |
Forex trading: spot currencies vs currency futures
Remember, you can trade forex using both futures and spot prices. Here are the main differences between the two:
- With spot trading, the trade is executed immediately and has no expiry, while with futures, the trade only settles on the agreed-upon future date
- The spread – the difference between the buy and sell price – is sometimes much greater for a futures trade than for a spot trade
- If you keep a spot position open overnight, you’ll pay overnight funding charges. However, with futures, these costs aren’t always relevant. That’s because you’d typically day trade with spot forex, while forwards involve position trading over a longer term
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Benefits and risks of forex trading
- Trade over 80 currency pairs
- Enjoy the freedom to trade futures, spots or options
- Go long or short
- Pay no stamp duty on your profits when spread betting1
- When trading with leverage, your profits and losses are magnified and there’s a high risk of losing money rapidly
Benefits and risks of futures trading
- Trade forex, indices, commodities and bonds
- Go long or short
- Pay no stamp duty on your profits1
- When trading with leverage, your profits and losses are magnified and there’s a high risk of losing money rapidly
Leverage allows you to get full exposure to the market with a small initial deposit. This is known as margin, which enables you to bring down your initial outlay but may increase both your profits and losses. It’s important to take steps to manage your risk before opening a leveraged position.
Learn more about how leverage impacts your trading
Forex vs futures summed up
- Forex is a market you can trade with us, using futures, options or spot prices
- Futures are called forwards in OTC forex trading, and enable you to take a position on forex at a predetermined date in the future
- You can trade forex or futures using US-listed futures or derivatives such as spread bets and CFDs
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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