24/7 Online Foreign Currency Trading

The differences between e-forex and forex futures

There are many confusions and misconceptions and confusions between online forex trading (or spot forex or e-forex) and currency futures contracts. Both provide ways to speculate on fluctuations in foreign exchange prices and rates, but they're not exactly alike. To distinguish the two, here are their key differences:

• Through an exchange, currency futures clears through an anonymous counterparty; while a broker in spot forex clears directly with the trader's counterparty.

• Third Fridays of March, June, September and December are the Maturity dates for currency futures; while spot forex maturity dates are any same business days between two trading currencies. The four maturity dates a year in currency futures occurs about every 90 days, thus maturity rolls over to the next maturity dates; whereas spot forex maturity days are rolled over daily or what is known as "spot-next."

• The Commodity Futures Trading Commission and National Futures Association in the United States are taking much greater interest in spot forex trading though, for years, regulation in spot forex has been self monitored. Both the CFTC and NFA have had jurisdiction and oversight for spot forex activities since December 2000, creating a safer market for traders.

• E-forex marks the spot price; whereas currency future contracts include such additives like premiums for transaction costs and interest rate differentials based on expiration of contracts expire. On the other hand, spreads will fluctuate from time to time based on the quoted pair, traded time and what amounted of the trade. Finally, from a retail trader's point of view, in currency futures, you get a fill price; while in e-forex trading you get a bid and ask for a price.

• Terminology isn't consistent between the two. In spot forex, oftentimes the bigger denominated currency is the currency that would be traded, however currency futures is quoted in U.S. dollars, which often trade the foreign currency and pricing.

• Currency futures are more uniform and by some account are less flexible than spot forex, especially when trading the crosses (e.g. two currencies trading in a foreign market).

• The tax provisions for these two can be same or entirely different. The marked difference is that e-forex does provide a certain level of flexibility during tax period depending on its classification.

Both markets have their tinges and special conditions like all other markets. Both are utilized for speculation and financial hedging. So proper research and awareness can only be advantageous to those who have wider information that they trade.