FOREX Market vs Stock Market

On the forex , there are only 6 major currencies. This allows a trader to focus and concentrate on which currencies to trade. In the equities market, there are over 40,000 stocks to choose from. Which stocks do you choose? On the stock markets, most people make money when shares are rising, but in economic recessions and falling "bear" markets, there is little chance of making serious money. In the forex market there is a big difference. One of the most exciting advantages of FX trading is the ability to generate profits whether a currency pair is "up" or "down". A trader can profit by taking a "long" position (buying the currency pair at one price and selling it later at a higher price) or a "short" position (selling the currency pair and buying it back at a lower price). In either case, there is always a good market trading opportunity for a trader. The ability to sell currencies without any limitations is a distinct advantage over equity trading.

For example:

If you think the US Dollar will increase in value versus the Japanese Yen, then you will buy Dollars and sell the Yen (go long). If you think the Yen will increase in value against the Dollar then you will sell Dollars and buy Yen (go short). As long as the trader picks the right direction, a potential for profit always exists. 24 Hours, 6 Days per Week

The forex Market never sleeps. A currency trader may take advantage of all profitable market conditions at any time. There is no waiting for an opening bell as in the case of trading stocks. It is a 24-hour, continuous currency exchange that never closes (normal operational hours are Sunday, 1:00pm through Friday, 2:00pm Pacific Standard Time). This is very desirable for those who want to trade on a part-time basis, because you can choose when you want to trade, morning, noon or night.

Profit potential in both rising and falling markets

Unlike the equity markets, with FX there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising or falling market.

Superior market liquidity

With $ 1.5 trillion trading hands daily, the FX market is also extremely liquid. This means that with a click of a mouse you can instantaneously buy and sell at will. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. You are never 'stuck' in a trade. You can even set the online trading platform to automatically close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order).

More leverage than trading stocks

In stocks, for every $ 1,000 cash you invest, you control a maximum of $ 2,000 worth of stocks. The maximum leverage is 2:1. But with forex , if you invest $ 1,000 margin on a foreign currency trade, you can control up to $ 100,000 in currencies. Leverage gives the trader the ability to make extraordinary profits and at the same time keep risk capital to a minimum.

Trade on Mini-Accounts with as little as $ 300

Many brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $ 30 and $ 200, that can mean an investment of $ 3,000 to $ 20,000 or more. But you can invest in foreign currencies for as little as a $ 300 deposit with mini-contracts. The smaller trade size enables you to take smaller risks. Mini-accounts are intended to introduce you to the excitement of currency trading while minimizing your risk. You can try out the demo account and paper trade or you can open up a mini-account right now and trade for real.

forex is perfect for technical traders

The strong trends that foreign currencies develop are a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.

Analyzing countries is easier than companies

Countries are often more stable than companies and it's easier to predict their overall economic direction. Currencies are traded in pairs, so if a trader buys one currency, he is simultaneously selling the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade should be most-closely examined.

No commission fees or exchange fees

In the forex market there are no charges, commission or exchange fees to trade currencies online or on the phone. In the equity markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic marketplace that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.

Uncorrelated to the stock market

A trade in the forex market involves selling or buying one currency against another. Thus, there is no correlation between the foreign currency market and the stock market. A bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader.

Inter-bank market

The backbone of the forex market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over-the-counter (OTC) market.

No one can corner the market

The forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived.

Now lets compare the Forex Market VS Futures Market click here.