Forex vs futures trading: what’s the difference? (2024)

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 with futures (known as forwards when referring to forex) and other derivative products, while you can trade futures on various financial markets.

With us, you can trade forex on future prices, on the spot and using 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 (called forex forwards). Regardless of how you want to trade forex with us, you’ll do so using derivatives like 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 USD’s value has risen, but even if it has dropped.

We offer forex futures (forwards) via 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:

1. Open an account to trade CFDs on the FX market
2. Pick the currency pair you want to trade
3. Choose the way to trade your FX pair – forwards, spot or options
4. 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: purchase 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 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 demo account – giving you £10,000 in virtual funds to build your confidence in a risk-free environment.

How to trade futures

To trade futures with us:

1. Open a CFD trading account
2. Pick a futures market to trade
3. Decide whether to go long or short
4. Set your stops and limits
5. Place your trade
6. Monitor your position

CFD market

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 potentially 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 relevant. That’s because you’d typically day trade with spot forex, while forwards involve position trading over a longer term

Day trading vs position trading

Your trading style determines whether you adopt a day or position trading strategy and, therefore, whether you prefer to trade spot forex or forex forwards.

Spot trading offers tighter spreads but incurs overnight funding fees, so it’s better suited to day traders.

In contrast, futures trading has wider spreads but no overnight fees, so it’s more appropriate for position traders.

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 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 derivatives such as CFDs