Traders' Migration to Forex

Forex market has made giant leaps the past decade and there's little evidence that the growth-curve will stop anytime soon. As an over-the-counter market, forex trading goes overboard when it comes to conventional financial instruments because it offers features that are yet to arrive in other markets. Forex trading offers tighter spreads, better margins, more liquidity and trading technology that's better than others, such as traditional futures trading.

For instance, the spreads in forex are smaller than in the futures market. On average, the spread in futures trading at the Chicago Mercantile Exchange is one-to-two ticks wide (about $25), and would be much higher during illiquid times. Also, from a trading standpoint, futures trading has a setback in that you often don't see the spread but only see the last traded price instead. In contrast, when trading with most forex dealers about three ticks wide (app. $25) is the average spread. The difference of forex is that there are no additional costs or commissions or you would worry about. Furthermore, forex market is rarely illiquid.

Another benefit of forex trading is that its time of operation are 5.5 days a week, 24 hours a day that follows every financial market around the world (from Australia, Tokyo, London, New York respectively). The continuous overlap of market activity and waves of currency exchange rates brings about massive liquidity. With a market that averages more than $1.9 trillion of daily trading, you can trade nearly anytime you want. Some forex dealers trade up to $20 million around the clock on the usd/eur.

Many traders are jumping to forex because it provides them better use of their trading capital. Forex traders can get better leverage than in other markets because profits and losses are computed in real-time, 24-hours a day. In addition, you can quickly use your gains for trading, essentially adding to the amount you can leverage. With futures contracts, you have to wait at sundown to find out your net and positions. Also, depending on what time it is when you have a futures position will cost you a wide range of margin rates that reflects your overall equity.

Leverage in forex trading is accomplished with a margin system that has no hassle than what's used in the futures market. This system comprises two crucial factors: 1) initial margin, 2) liquidation value. The initial margin indicates a certain percentage (from 2% to 100%) of the value of a position you intend to take in the forex market. Equity is used to measure if the values are over 100% of the margin requirement during the transaction. If it's so, then you can enter into the position. This factor is like the futures model, with the main difference being that forex provides real-time risk management so profits or losses are taken into consideration in actual time.