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Comparing Forex Trading And The Stock Market

May 10, 2008
There are a lot of advantages to trading currency on the foreign exchange market that stock market trading doesn't have. Here are a few.

A twenty-four hour market - Foreign exchange markets are open to do business around the clock. Small investors who are starting out doing trades in their spare time can benefit from this, since they don't need to juggle their schedules around opportunities to trade. This means that if you choose Forex, you can schedule trading when it works for you. It doesn't matter if you're a night owl who wants to trade at one in the morning. There's a bank open in Tokyo.

Low cost of transaction - Since Forex brokers don't work on commission, and no hidden fees are lurking in the fine print, you won't pay a lot to trade. Broker fees are directly build into the trade as the bid/ask spread. This spread is the difference between the buying price and selling price of the currency, and it's expressed in what are called pips.

Leverage/margin - Trading on margin means that Forex traders have greater leverage in trading. It also offers the ability to make a very high profit on only a small investment. If you find a broker allowing a margin of a hundred to one, you can buy a hundred thousand dollars in currency with only a thousand dollar deposit. Remember that this leverage goes both ways and can lead to large losses if you're not careful.

Fast trade execution/high liquidity - If you're trading in currencies, that means you're trading in cash - the single most liquid investment there is. Trades can be executed almost instantly, and there's no need to sit around waiting for yours to go through.

Difficult to influence - The foreign exchange market is so large that it's almost impossible for a single person, bank, fund, or even a government to influence it for any length of time. The stock market, on the other hand, can be influenced by things as small as a television analyst's negative forecast.

Small sample size - Stock trading means that you have thousands of options, including international companies, large and small companies, and newly issued IPOs. It's difficult to follow everything. In Forex trading, on the other hand, there are seven major currencies to follow. That means you can devote plenty of time to each. In fact, there are a number of successful Forex traders who don't even trade in all seven currencies. You can just pick three or four and stick to them without a problem.

No bear markets - Because it's possible to trade short or long, you can make money whether the prices are up or down. You just have to make the right guess.
About the Author
Ian Armstrong is an avid Forex enthusiast.

Visit Forex Shortcuts for an inside look at what successful traders do, as well as objective, results-based reviews of the more popular FX trading systems.
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