The Difference Between Forex and Futures Trading in London
Table of Contents
Forex is the simultaneous purchase of one currency and sale of another, while futures are agreements to buy or sell a certain amount of something at a predetermined price on a specific date.
At its most basic, trading forex involves simultaneously selling one currency while buying another to benefit from changes in exchange rates.
Trading forex is not the same as speculation about future changes in exchange rates; it’s a real deal involving buying or selling currencies for immediate delivery and payment.
Forex trading is different from investing in securities (such as stocks) because there’s no ownership involved.
The difference between forex and futures trading in London
What is futures trading?
Futures contracts are much more complex, requiring buyers to purchase something at a given price on a future date.
The agreement obliges the seller to deliver what’s on the contract, as long as the buyer still wants it on the future date.
The London market tends to offer more opportunities for foreigners, especially non-European foreigners.
London’s new FX Global Code of Conduct ensures that London exchanges operate transparently and cooperatively.
London is also seen as one of the safest places to trade by many institutions because London law makes it easier to recover investments than other jurisdictions worldwide.
Forex trading in London
In London, forex is also known as FX or off-exchange foreign exchange.
London is a focal point for international financial markets and home to some of the world’s biggest banks, corporations and institutions, which provide a favourable environment for foreign trade.
London has an insurance market comprising three main segments: reinsurance, international P&C syndicate and London market Lloyds.
London’s other financial services include:
- Private banking
- Asset management (both open-ended funds and special purpose vehicles)
- Retail broking with various regulatory regimes operating in different business areas Global investment banks dominates London wholesale market sinks.
London is also a market leader in the foreign exchange, money markets and capital & derivative markets.
London has an increasingly active IPO market that feeds London’s equity derivatives market. London also supports over twenty major world currencies with good liquidity.
London offers non-UK brokers access to London’s markets, but London brokers can trade worldwide.
London operates as a forex trading centre through the London International Financial Futures and Options Exchange (LIFFE), now part of Intercontinental Exchange (ICE).
Futures trading in London
The London International Financial Futures Exchange (LIFFE) was established in 1982 as Europe’s first futures exchange to be traded electronically.
LIFFE merged with its most significant rival, the London International Financial Futures and Options Exchange (LIFFE), in 1999 to create The London Stock Exchange plc., now known as Euronext. LIFFE(since then part of NYSE Euronext).
It was previously owned by London Stock Exchange plc, which is now listed on the London Stock Exchange as London Stock Exchange Group.
To become a member, you must be sponsored by two existing members of LIFFE and approved by the Board. Each futures contract has its ticker symbol for ease of reference.
Whilst London is the largest financial centre in Europe; it faces stiff competition from other European cities such as Frankfurt and Paris. London’s allies are New York City, Tokyo and Singapore.
London hosts many international regulators, making London a leading global regulator for finance and investment.
London is one of the world’s primary centres for international finance with a strong history in foreign exchange trading.
In London, commodity futures contracts have been traded on LIFFE from 1985 when cocoa was the first contract to be introduced, followed by coffee, live cattle, silver and sugar.
In 2016 London became more attractive after the Brexit referendum, clearinghouses relocating due to regulation issues, especially derivatives.
London’s leading derivatives markets are interest rate, equity index and currency. London is a leading global futures capital hosting the most significant financial futures swap market globally.
London also hosted LIFFE, The London International Financial Futures Exchange, from 1982 to 1999.
Conclusion
London is known as one of the world’s financial centres, making it an ideal location for trading forex and futures.
The London Forex market and London Futures market operate alongside each other in London to provide traders with an experience of different types of trades.
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