The Forex or Foreign Exchange Market has major differences from the stock market and many consider these differences advantages. To trade on the Foreign Exchange market requires an investor to be aware of economic and political factors on a global scale even though software will facilitate much of the tracking and spotting of the best trades. The Forex market does a much greater volume of businesses because it involves every stock market in the world and this also allows 24 hour a day trading opportunities. A Forex trader deals more in currencies or easy to liquidate items rather than ownership or equity in a company. The stock market offers a trader thousands of options whereas the Forex options are currency pairs and deals with governments, banks and financial institutions.
World Wide Marketplace
Stocks are usually limited to the currencies of the country where the exchange is located, such as the New York Stock Exchange (NYSE), the London Stock Exchange or the Tokyo Stock exchange, but because the Forex is global and uses currency pairs, there is always a market open to conduct business despite of the operating hours of a single stock exchange. The Forex is not specific to one country and since transactions are between banks, brokerages and other large institutions, it is an Over the Counter trade. The most active time for trading is during London trading hours because it is the biggest Forex market. The Tokyo market opens at the end of the London trading hours and the New York market becomes active at the end of Tokyo. These markets have overlapping hours also. This avails 24 hour trading opportunities allowing a trader to decide at their convenience when to enter, modify or exit a trade.
The four major currency pairs are the euro/US dollar, US dollar/Japanese yen, Great Britain pound/ US dollar and the US dollar/Swiss Franc. With only eight major currencies to consider, analyses take less time and currencies are easier to follow compared to the thousands of stocks available on a market. In the FX or Forex market a trader is buying and selling at the same time and not limited by the rules of any one market.
The Cost of Investing
In the Forex market, traders deal in currencies rather than securities or bonds. There is no trading cost, other than the spread, and a traders only need 1% in their margin account. Margins are low and leverage is high. In the stock market, brokers’ fees are required in addition to the spread, whereas forex brokers take the spread as their fee on a trade. Since traders deal in currency their investments do not fluctuate sharply as those in the stock market. The stock market requires a broker or other entity that requires a fee and business is done on the floor of the stock exchange.
Another advantage in the Forex market is the use of Forex systems that help traders determine the best time to buy, sell or trade a currency. Traders can automatically trade using software programs and trades are made immediately without having a broker on the trading floor to execute a trade. There is usually a shorter time frame on trading in the Forex Market and a trader can hold currencies for longer periods of time without being afraid of losing their investment. To try your hand at Forex trading, downloading a free Forex demo software will allow you to test the market and your skills at trading.
Deciding to Participate in Forex Trading
Although this article introduces a brief summary of relevant Forex topics, there are many online tutorials and guides that will give you greater insight on making wise investment decisions. Once you have learned the ins and outs, AlfaTrade offers an online trading platform and suite of Forex tools to help you enjoy the differences and advantages to Forex trading.