Differences between Futures, Stock and Forex markets

Differences between Futures, Stock and Forex markets

Guides

Trading is a part of our everyday life. It is a global activity. Everywhere in the world, people buy and sell different types of products for different purposes. The majority of us know trading at the retail level. The basic idea behind trading is to give an amount in a form of a currency and in return, you get the commodity you wanted. This same basic idea is the driving force of the financial market. There are various markets on the financial market. Amongst them are futures, stock and the forex market. These three market types operate differently but with the same basic idea of trading.

The forex market deals in currencies. A typical example is the USD which is the most traded currency on the forex market. The currencies are traded in pairs. The difference in the bid and ask price of a currency pair is the profit made by a trader.

As the name implies the stock deals in stocks. Basically, traders buy stocks at a certain price and sell at a higher price. The difference in price is the profit a trader makes.

The futures market, on the other hand, is an auction market. With this type of market, the two parties buy and sell futures contract and commodities to be delivered on a future date. Producers and suppliers of commodities usually make futures contract in an attempt to avoid volatility on the market. Examples include the Chicago Mercantile Exchange, the Minneapolis Grain Exchange, the Kansas City Board of Trade, the New York Mercantile Exchange, the Chicago Board of Options Exchange and many more. In the past trading on the futures market was done using hand signals and yelling but with the technical advancement in the 21st century, its now being done electronically.

Most people who want to start trading have no prior knowledge of trading and as such are don’t know which one of these market types will be the right fit for them. If you are amongst these lot, your prayers have been answered. Look no further. Discussed below are some of the characteristics of each market type that will help you find the best fit for you.

The Stock market

stock market

It is important to focus on just one type of market for now as a beginner and learn how to trade on it properly before moving to the other market types. Little beginnings are always the most important. If you meet these criteria then the stock market might just be what you are looking for.

  • The minimum capital required to start trading in US stocks is $25,000. The recommended capital to start is at least $30,000
  • The market starts at 9:30 AM and ends at 4:00 PM EST. Many traders make pre-market trades. Pre-market trades are trades made before the market opens between 9:00 and 9:30 AM as these ideal market hours hold the most potential for profit.
  • There is almost an infinite number of stocks to trade on. So the potential to make a profit on the stock market is limitless. You can trade on a part-time Most professional traders trade on a part-time basis. 3 hours a day at most.

After considering these points and you are confident in your ability to trade on stocks then go ahead. But if you lack the capital of $30,000 but still want to trade, then the other options might just be what you are looking for. They both equally hold promise to make huge profits.

The futures market

futures market

  • The recommended capital to trade on the futures market is between $3,500 to $5,000. Depending on the type of futures you are trading in, the starting capital will vary. As a beginner, trading ES will be the best recommendation.
  • The opening hours for ES is from 9:30 AM and closes at 4:00 PM. You can also make pre-market trades.
  • The best market hours to trade on futures are the pre-market hours between 8:30 AM and 10:00 AM, and 3 PM ad 4 PM.
  • Trading outside of the US official market hours also provides great trading day trading hours. Examples are the European and Asian markets. These market hours can also provide some flexibility for you if you cannot trade within the USA market hours.

If you have the capital and the know-how of futures market, why not trade advantage and make for yourself huge profit? One advantage this market type has over  stocks market is the minimum capittal required to trade.

The Forex market

forex market

The forex market is by far the biggest market in the world. If you could not identify yourself with any of the above mentioned two then forex should be your final stop.

  • The minimum required capital for forex trading is between $500 to $1000.
  • The forex traders are available 24 hours due to different time zones. From 5PM EST on Sunday to 5PM EST on Friday. Not all these time periods are good trading hours.
  • On the forex market, the ideal trading hours depends on the type of currency pair.

With the right education  and a minimum amount of $500, the market will be the best place for you to start your trading carreer. As mentioned earlier on, it is the biggest market in the world. There are numerous currency pairs to trade on. The opportunity to make profit on the forex market is limitless.

Futuress vs forex

At this juncture we will discuss the difference between forex and futures.

  • Risk guarantee.

Trading in  futures offers no guarantee on risks. Forex on the other hand offers limited risk. A forex trader can put position limits on his trade to minimize his losses but same cannot be said for a futures trader.

  • Price certainty.

A forex trader is offered price certainty and rapir execution of trade under normal market conditions but same cannot be said for futures trader.

  • Liquidity

The liquidity that the futures market offers is no where near what the forex market offers. $5.3 trillion is traded on the forex market daily where as about $30 billion is traded on futures on daily basis.

Forex or stock market

In case you are splitted about forex trading or stock trading, allow me to to off the burden and enlighten you. Even though the mechanics involved in trading is pretty much the same for both market types there is one distinct difference.

  • The forex market offers very few trading options whilst the stock market on the other hand offers thousands of trading options. Most forex traders focus on the currency pairs which include, USD/JPY, GBP/USD, EUR/USD and USD/CHF and three commodity pair namely USD/CAD, NZD/USD, AUD/USD

Commodity vs stock trading

Commodity trading is the buying and selling of goods termed commodity. An example is oil. Whilst stock trading is the aggregation of markets and exchanges where stocks of publicly held companies, and other types of securities are being traded.

Conclusion

Now you know the differences between these three types of market. So check your income and every necessary information to see which one of these best suits your needs and goals.Wish you best of luck.