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Forex Trading vs Stock Trading
Filed Under (Forex Trading, Forex basics, Forex education) by umikun on 23-03-2009
I have been reading alot of reports about Forex Trading courses in the papers these past few days. So i decided to make some comparison between Forex trading and Stocks trading.
In Forex trading you will find that it offers several advantages over stocks and shares. Lets take a look and make a comparison between these 2 financial instruments;
A substantial attraction for participants in the Forex market is that it is open 24 hours a day. It allows the participants to exit or open a new trade regardless of the hour. Traders can respond to breaking news immediately and P&L is not affected by after-hours earnings reports or analyst conference calls.
Next, we will explore the superior liquidity in Forex trading. Forex traders do not have to worry about being wedged in a position due to a lack of market interest. As the average trading volume is 50 times larger than most Stock Exchanges, there are always brokers or dealers willing to buy or sell currencies in the Forex markets.
The liquidity of the Forex market, especially the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price. On the contrary, traders in the stock markets & other exchange-traded markets are more vulnerable to liquidity risk due to a lower transaction volume.
Comparing with Equities, Forex trading offers a greater Buying Power. Forex traders are offered 100:1 leverage by major online Forex dealers, which is substantially beyond the common 2:1 margin offered by equity brokers.
Unlike most of the stocks which require you to fork out a few thousand dollars to trade just a few lots, in Forex trading, you are able to open an account for just USD400. For those with a low start up capital, it is much more cost-efficient to trade Forex, in terms of both commissions and transaction fees. Some brokerage house charges a fixed commission for the each currency traded, and at the same time offering zero to 1pip (the minimum increment of any currency) spread (the difference between the buy and sell price).
Another advantage of Forex trading is that there is no ‘bear’ market; per say. Currencies are traded in pairs, for instance, US dollar versus YEN or US dollar versus Swiss Franc. Trading always involves buying one currency & selling another. The potential for profit exists as long as there is movement in exchange rate regardless of which way the market is moving. This means a trader has an equal potential to profit in a rising, or falling market, provided you pick the right side; potentials profit ALWAYS exists.
Ever notice in the stock market that a certain stock is suddenly down 5% or more but you have absolutely no idea what caused such a quick spike? Usually it’s not until the next morning when you read it in the newspaper that you find out that earnings forecasts have been revised downward, or that an insider at a particular company has resigned, or that some other influential piece of information was released that you were not aware of. Imagine how much money you could have saved had you known this vital information at the same time as all other market ‘insiders’. How much you could even have earned in profit by acting in a timely manner. Imagine a market where there is little or no ‘insider information’ & all pertinent, market-moving news is released publicly to everybody in the world at the same time…
I hope my sharing of the above article about advantages in Forex trading is helpful in your diversifying of your portfolio.
In my next article, i will be making some comparison between Forex trading and Futures trading.
This article about Advantages in Forex Trading is brought to you by www.onlinetradingfx.com.
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