The Difference Between Forex Trading and The Stock Market

Still standing at the crossroads wondering whether you should dabble in trading shares in the stock market or trading currencies in the forex market?

Take a look at some of the ways in which forex trading offers you the edge over trading in the stock market:

The Forex Market operates 24 hours a day

The opportunity to trade 24 hours a day can give small investors a huge advantage as it allows you to trade whenever it is convenient to you. If you hold a regular 9-5 job you could come back home and still execute a few trades before going to bed. If you want to wake up in the wee hours of the morning and trade, you could even do that as banks in Tokyo would have already opened for business.

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Lower Transaction Fees in the Forex Market

Unlike stock brokers who take commission-based fees, a forex broker’s fees are directly included into the trade by way of the bid/ask spread, which is expressed in “pips”. A pip or the spread is the essentially the difference between the price at which you would purchase a currency for and the price at which you would sell it for.

Significant Leverage/ Margin in the Forex Market

Forex traders gain considerable leverage in their trading because of the ability to trade on margin in the forex market. Trading on margin in the forex market offers you the opportunity to make tremendous profits with relatively smaller investments.

For example, if a broker allows you a margin of 100:1, it means you would be able to buy $10,000 in currency with a deposit of only $100. Keep in mind that leverage can go either way and you could end up losing huge amounts of money if you are not cautious.

High Liquidity/Fast Trade Execution in the Forex Market

Because trading in currencies are done using hard cash, which is a very liquid investment, trades in the forex market can be executed almost instantly. You don’t need to waste precious time waiting for your trade to get done.

Higher Stability in the Forex Market

The foreign exchange market spans the entire world, which means that no one government entity can impact it for a significant amount of time and neither can any bank, fund or individual. This is unlike the stock market, which is much more volatile and could send a company’s stock into a complete nosedive should even one television analyst give it a negative appraisal.

Smaller Samples to Study in the Forex Market

Trading in the stock market involves studying and keeping track of several thousands of stocks that are available for trading. Again, there are different strategies to be used depending on whether you are dealing in newly issued IPOs or stocks of small companies, large conglomerates or international consortiums.

In forex trading on the other hand you could essentially devote all your time in studying just seven of the major currencies, which makes it so much more containable. Better still, once you’ve studied the forex market a little more, you do not have to go on tracking these seven currencies. You would be able to zoom in on just 4 or 5 of the best and focus exclusively on these.

Absence of Bear Markets in the Forex Market

The ability to trade either long or short opens up tremendous opportunities to make a windfall irrespective of whether the prices go down or up. All you need to do is to make an accurate guess as to which direction the prices are likely to be going in and you are sure to be a winner all the way.