Forex, Futures, Options – Which One?

  • September 10, 2014
  • Blog

The first thing new traders are faced with is the question “I know I want to take part in the financial markets, but there are so many products out there, which one should I trade?”

This issue could be turned into a complex discussion and anyone that wants to know more in depth reasons please feel free to get in touch. However this article will hopefully give the new trader some definitive things to consider.

Firstly Forex. This may shock a few of you but if you are serious about wanting to trade intraday, or fairly frequently (more than 2-3 times a day) then you should absolutely not trade Foreign Exchange. The internet is awash with people marketing Forex brokers. And that is all it is, a hugely effective marketing exercise. I have traded professionally at the biggest proprietary trading firms in London and Europe my entire career, I have seen hundreds, if not thousands of traders come and go and not one of them (in my experience) profitably traded Forex. FX claims to be commission free. It is absolutely not. You have to pay a spread every time you trade. Call it an average of 1.5pips depending on the market you are trading (some of the spreads are as wide as 10pips) you have to pay that every time you trade! The costs will kill your account. Forex trades on an unregulated exchange, you have no idea who is handling your order and there is very little accountability in the market place. Most Forex brokers do not route your orders to the real market, they keep your trades in house and often the brokerage will actually trade against its own clients.

I have been a professional Futures trader my entire career. I have supported myself financially my entire life trading markets such as Oil, E-mini S&P, the German Dax Index, and various bond markets. Proprietary trading groups are made up of hundreds of people like me doing the same thing. These are the professional traders you often read about in books such as Market Wizards. And we all trade Futures. Firstly they are the most cost effective way to trade. In Futures you can actually MAKE the bid offer spread in the market, you don’t have to pay it like in Forex. All your trades go onto a regulated exchange which is highly transparent. But in my opinion the most exciting part of it is you have access to the “Depth of Market”. You can see exactly where everyone in the market is placing their orders. I have made my entire career from figuring out patterns in the order flow and can predict exactly where the large market participants such as banks and hedge funds are hiding their orders. And this is exactly what I teach at . Forex does not allow you this sort of information. Some claim they have some volume statistics but there is no way to verify it as there is no central exchange. Oh and you can also trade currencies on your Futures account, you just trade a currency contract rather than actually exchange one currency for another, it is perfectly simple to do and you avoid all the issues I raised when talking about the retail Forex market.

Options trading is also a professional way to trade the markets that offer the same benefit as futures. However it is very complex to learn the professional trading strategies that will actually give you a return so there is a real risk you will lose a lot of money during the learning curve.

Without a doubt I recommend you learn to trade the Futures market. But make sure you learn from someone that can actually demonstrate their trading and teaches you about order book trading; this is how we really trade. It is perfectly simple to set up a simulated trading account at most brokers so you can learn the techniques without risking real money.