Forex Trading Vs The Stock Market

Forex Trading vs The Stock Market

Trading currencies on the foreign exchange has quite a few advantages over trading stocks.

1. A 24-hour market. The foreign exchange is open for business twenty-four hours a day. This is a major plus for small investors who are starting out trading in their spare time. Rather than having to juggle your schedule around your trading opportunities, you can schedule your trading when its convenient for you.

If you're a night owl in Manhattan and want to trade at 1:00 AM, no problem. Banks in Tokyo are open.

2. Low Transaction Costs. Forex brokers are not paid by traditional commission-based fees, and there are no hidden fees. The broker's fee is built directly into the trade in the form of the bid/ask spread. In simple terms, the spread is the difference in what you would buy a currency for and what you would sell it for. The spread is expressed in "pips".

3. Leverage/Margin. The ability to trade on margin gives forex traders significant leverage in their trading and offers the potential to make extraordinary profits with relative small investments. For example, with a broker that allows margin of 100:1 you can purchase $100,000 in currency with only a $1,000 deposit. Of course, leverage goes both ways and can lead to large losses if you are not careful.

4. High Liquidity/Fast Trade Execution. When you trade in currencies you are trading in cash. There's no investment more liquid than cash, so trades are executed near instantaneously. There's no sitting around waiting for your trade to execute.

5. Not Easily Influenced. The foreign exchange market is so incredibly huge that no one individual, fund, bank, or government entity can influence it for long. This is the opposite of the stock market where one television analysts negative appraisal of a company's stock could send it into a tailspin.

6. A Small Sample to Study. There are thousands upon thousands of stocks available to trade. Large companies, small companies, international companies, newly issued IPOs. Its just not possible to follow them all.

In forex trading, there are only seven major currencies to follow, so you can devote a lot more time to each of them. And there are many successful forex traders who do not even trade in all seven major currencies. Some just pick three or four and stick with them.

7. No Bear Markets. Since you can trade either short or long, you can make money whether the prices go up or down (assuming you guess correctly).