Forex Beginners – Forex vs Stocks
Yesterday we gave the definition of forex. Today we want to compare the forex market to the stock market. Chances are that you know a bit more about the stock market vs the forex market.
The definition of the stock market is simply the business of buying and selling stock for the financial aspect. Stock refers to a supply of money that a company has raised. Investors (or stock holders) give the company this supply of money in order to help that company grow, therefore increasing the value of their stock and in turn making a profit.
The stock market is one of the more traditional ways to create a profit from an investment…
Now let compare the two..
1 - The stock market allows trading to take place basically during the usual business hours. The forex market is open 24 hours, 6 days per week (Saturday to Saturday). This gives you more flexibility if you are going to being trading the forex on a part-time basis.
2 – The stock market has thousands of stocks to choose from. Activity in the forex market is mainly focused around 8 major currencies – U.S. Dollar, British Pound, Euro, Japanese Yen, Hong Kong Dollar, Canadian Dollar, Australian Dollar and Swiss Franc.
3 – The forex market allows the individual trader the ability to use the power of leverage. This means that you can make a trade worth $10,000 even if you only have $1,000 in your trading account. The stock market does not allow this.
4 – There are minimal commissions in the forex market. The Forex Market is considered to have the lowest overall commissions relative to trade size compared with other financial markets.
5 – The forex market has high liquidity. High liquidity means that there will always be someone to buy or sell any currency you want. In the stock exchange market, if you want to sell a stock, you may have to wait a relatively longer period until someone is available that wants to by the stock from you.
6 – The forex market is the largest financial market. In fact, with trillions of dollars traded per day, the forex market is larger than all other financial markets combined. Because it is so large, no one entity can affect significant changes. This means that you don’t have to worry about any one person or any one company “cornering the market” and causing drastic changes to their benefit, as can occur in the stock market.
7 – The forex market is recession proof. Recession is often defined as a contraction in the economic activity for a sustained period of time. However, although there is reduced activity, there still has to be the exchange of currencies because of export and import. Therefore, even in a recession, you can trade on the forex market profitably.
8 – The start up cost for online forex trading is very little compared with trading on the stock market. You can open an online forex account with as little as $50. You can even open a free demo forex account, to practice trading and gain experience without risking your own money.
Next, we’ll talk breifly about the history of forex.
To Your Trading Success,
William
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