The forex (foreign currency exchange) market is the most significant and a lot liquid financial market on the globe. The forex market unlike stock markets is an otc market with no central exchange and clearing house where orders are combined. forex exit strategy
Traditionally forex currency trading has not been popular with selling traders/investors (traders takes shortest term positions than investors) because foreign exchange was only opened up to Hedge Funds and has not been accessible to price tag traders like us. Just in recent times that forex trading is opened to selling traders. Comparatively stock trading has been around for considerably longer for retail traders. Recent advancement in computer and trading technologies has enabled low commission and easy use of retail dealers to trade stock or foreign currency exchange from almost anywhere in the world with internet gain access to. Easy access and low commission has tremendously increased the odds of receiving for retail traders, both in stocks and fx. Which of the two is an improved means to fix a trader? The comparisons of retail stock trading and retail forex trading are as follows;
Nature of the Instrument
The size of the items being bought and sold between forex trading and stocks and options trading are different. In stocks trading, a dealer is buying or offering a share in a specific company in a country. There are many different stock markets in the world. Many factors determine the rise or fall of any stock price. Refer to my article in under stock section to find more information about the factors that affect stock prices. Fx trading involves selling or buying of currency pairs. Within a transaction, a trader buys a foreign currency from one country, and sells the currency from another country. Therefore the term “exchange”. The investor is hoping that the value of the forex that he buys will rise with respect to the value of the currency that he offers. In essence, a fx trader is betting on the economical prospect (or at least her budgetary policy) of one country against another country.
Industry Size & Liquidity
Fx market is the most significant market on the world. With daily transactions of over US$4 trillion, it dwarfs the stock market segments. While there are hundreds of different stocks in the stock markets, there are only a few currency pairs in the forex market. Therefore, fx trading is much less prone to price tricks by big players than trading and investing. Huge market volume level does mean that the currency pairs enjoy increased liquidity than stocks. A forex trader can get into and exit the industry easily. Stocks comparatively is much less liquid, an investor may find problem leaving the market especially during major bad news. This kind of is worse especially for small-cap stocks. Also scheduled to its huge fluidity of forex market, fx traders can enjoy better price spread as in contrast to investors.
Trading Several hours & Its Disadvantage to Retail Investors
Forex market opens 24-hour while US stock market opens daily from 930am EST to 4pm EST. This means that Fx traders can choose to trade any hours while stock investors are limited to 930am EST to 4pm RESTE. One significant disadvantage of retail stock traders is usually that the stock markets are only opened to market manufacturers during pre-market hours (8: 30am – 9: 20am EST) and post-market several hours (4: 30pm – six: 30pm EST). And it is during these pre-market and post-markets hours that most companies release the earnings results that might have great impact on the stock prices. This means that the retails dealers (many of us) could only watch the price rise or drop during these hours. Besides, stop order would not be honored throughout this times. The forex traders do not suffer this significant drawback. Also, a stock speculator may supplement his/her trading via forex trading outside the stock trading hours.
In order to transact stocks, a trader needs to have quite a significant amount of capital in the account, at least a few tens of thousands in standard. Yet , a forex investor can start forex trading with an account of only a few hundreds dollars. This kind of is because forex trading permits higher leverage. A trader could obtain much larger transaction compared to stock market. Some forex companies offers 100: 1, 2 hundred: 1 or 400: one particular. A leverage of 75: 1 means that the US$1k in account could obtain a 100 times transaction value at US$100k. There is not any interest charge for the leveraged money. Inventory trading generally allows for not more than 2 times leverage in border trading. You will find interest charges associated with margin trading.