The purpose of this article is to demonstrate to you the advantages of trading on the FOREX (foreign exchange) market. One myth that I’d like to dispel before I go further is the myth that there is a difference between trading and investing. When investing in stocks you wouldn’t select a stock that didn’t gain profit, when trading currency you are investing in a fund in the hopes to make a profit.
Comparing Forex to Stocks and Commodities
Let’s compare the features of currency trading to those of stock and commodity trading.
Forex Trading Times vs. Other Markets
Trading Times – Forex trading is conducted 24 hours a day, 5 days a week allowing active traders to choose when they trade. Commodities trading are dependent on the commodity you are trading. The stock market is only available during typical business hours.
High Liquidity in the Forex Market
Liquidity – The FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded every day. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day.
Understanding Leverage Across Markets
Leverage – Depending on your FOREX account size, your leverage may be 100:1. Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high.
Lower Trading Costs in Forex
Trading costs – There are not usually brokerage fees when trading forex. Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.
Minimum investment – You begin trading in forex for very little money. Investment in stocks typically requires a higher investment.
Focus – 85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers
Trade execution – Trade execution in the FOREX market is almost instantaneous. In both the equity and commodity markets, you are dependent on a broker to execute your trades.
Risks and Requirements for Forex Traders
While features make trading the FOREX market very attractive, remember it still requires a lot of education, discipline, commitment and patience. All trading comes with risk and forex trading is consider high risk trading.
