Forex vs futures trading in Japan: Know the difference

There are a few different instruments traders can choose when trading in Japan. Although forex trading is a hugely popular investment choice, some traders may find futures trading more suitable. You must understand the differences between these two investment vehicles before deciding which type suits you best.

Here’s a look at the differences between forex and futures trading in Japan:

Forex trading

Forex (or FX) trading is the buying and selling foreign currencies. According to its fundamental analysis, traders can make profits by buying a currency undervalued and then selling it at a later stage when the price has increased against the counter pair. Forex traders also use technical analysis to identify price patterns and make trades accordingly.

FX markets are decentralised, meaning that they are not regulated by a single authority like a stock exchange. It makes FX trading riskier, allowing traders to simultaneously benefit from price movements in multiple currencies.

Futures Trading

If you trade futures, you essentially buy and sell futures contracts. This type of contract is a legally binding agreement between you and another party to trade an asset on a pre-determined date and at a specific price in the future. Traders often use futures contracts to hedge risk, meaning that traders can use them to protect themselves against price fluctuations in the underlying asset.

Unlike FX markets, futures markets are centralised and regulated by exchanges like the Tokyo Stock Exchange (TSE). It means that futures traders have access to standardised products and tight liquidity. It also means that futures trading is less risky than FX trading.

Forex vs futures trading

The critical difference between forex and futures trading is that forex trading is done over-the-counter (OTC), while futures contracts are traded on exchanges. It means that the forex market is decentralised while the futures market is centralised.

Another difference is that forex traders can trade 24 hours a day, five days a week, while futures traders can only trade during specific hours when the exchanges are open. Lastly, futures contracts are typically used for commodities and indices, while forex trading is more commonly used for trading currencies.

Advantages of forex and futures trading

One of the main advantages of forex trading is that it is open 24 hours a day, five days a week. You can trade around the clock, seven days a week, anytime convenient for you. On the other hand, futures trading is only open during regular or session hours.

Another great advantage of forex trading, especially for novices, is relatively simple. All you need is a computer and an internet connection. On the other hand, futures trading requires more research and preparation, and you need to be familiar with the different contracts and how they work.

However, one of the most significant advantages of futures trading is that it offers investors more excellent protection against loss. Forex traders can lose money if the currency they are betting on falls in value. On the other hand, futures traders can only lose as much as they invested in a particular contract. It makes futures trading a less risky option for many investors.

Bottom line

So, which type of trading is right for you? That depends on your goals and risk tolerance. Forex trading may be a good fit for you if you want to make short-term profits by trading in multiple currencies. Future trading may be better if you’re looking to hedge risk or trade in more standardised products. If you are an accredited investor, you have some advantages over other investors as you have access to financial tools that will allow you to take educated risks. Click on the link to know what is an accredited investor.

As you can see, there are some key differences between forex and futures trading in Japan. Therefore, it’s essential to understand these differences before deciding which type of trading is right for you. Japan is a great place to start your trading career with so many opportunities available. Whichever route you choose, make sure to do your research and use a reliable online broker like Saxo Bank to help you navigate the markets.