Forex VS Equities

Forex Trading: Advantages over Stock Trading

Historically, the majority of the general public has viewed the securities markets as an investment vehicle. In the last ten years securities have taken on a more speculative nature. This was perhaps due to the downfall of the overall stock market as many security issues experienced extreme volatility because of the irrational exuberance displayed in the marketplace. The implied return associated with an investment was no longer true. (If indeed it ever was.) Many traders engaged in the day trader rush of the late 90's only to realize that, from a leverage standpoint, it took quite a bit of capital to day trade, and the return while potentially higher than long-term investing was not exponential. After the onset of the day trader rush, many traders moved into the futures stock index markets where they found they could leverage their capital greater and not have their capital tied up when it could be earning interest or making money somewhere else. Like the futures markets, Forex currency trading is an excellent vehicle for pattern day traders who desire to leverage their current capital to trade. Spot currency or Forex trading provides more options, greater volatility and stronger trends than currently available in stock futures indexes. Former securities day traders have an excellent home in spot foreign exchange.


No Middlemen
Centralized exchanges provide many advantages to the trader. However, one of the problems with any centralized exchange is the involvement of middlemen. Any party located in between the trader and the buyer or seller of the security or instrument traded will cost them money. The cost can be either in time or in fees. Spot currency trading does away with the middlemen and allows clients to interact directly with the market-maker responsible for the pricing on a particular currency pair. Forex traders get quicker access and cheaper costs.


Buy/Sell programs do not control the market
How many times have you heard that "fund A" was selling "X" or buying "Z"? Rumor had it that the funds were taking profits because of the end of the financial year or because today is "triple witching day", all as an explanation of why this stock is up or the market in general is down or positive on the session. No matter what your broker says the stock market is very susceptible to large fund buying and selling, and it is not uncommon for a fund to run a particular issue for a few days. In spot Forex currency trading, the liquidity of the Forex market makes the likelihood of any one fund or bank to control a particular currency very slim. Banks, hedge funds, FCM's, governments, retail currency conversion houses and large net-worth individuals are just some of the participates in the spot Forex currency markets where the liquidity is unprecedented.


Analysts and brokerage firms are less likely to influence the market
Have you watched TV lately? Heard about a certain Telecomm stock and an analyst of a prestigious brokerage firm accused of keeping its recommendations, such as "buy" when the stock was rapidly declining? It is the nature of these relationships. No matter what the government does to step in and discourage this type of activity, we have not heard the last of it. IPO's are big business for both the companies going public and the brokerage houses. Relationships are mutually beneficial and analysts work for the brokerage houses that need the companies as clients. That catch-22 will never disappear. Foreign exchange, as the prime market, generates billions in revenue for the world's banks and is a necessity of the global markets. Analysts in foreign exchange don't drive the deal flow; they just analyze the Forex market.


8000 stocks vs. 4 major currency pairs
There are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500 are listed on the NASDAQ. Which one will you trade? Got the software? Got the time? In spot Forex currency trading, you have 4 major markets, 24 hours a day 5.5 days a week. You have approximately 34 second-tier currencies to look at in your spare time (if you are so inclined). Concentrate on the majors, find your trade. Spend your afternoon on the golf course or with your kids (instead of with your eye doctor trying to diagnose why you are seeing double).


Commission free
Simply put: no commissions, no clearing fees, no exchange fees, no government fees, and no brokerage fees. Sure there may be different names for different fees at different places, but in spot currencies no commissions means just that- NO COMMISSIONS. ForexCT.com earns its income from participating, along with the various liquidity source providers, in the ‘bid’ and ‘ask’ spread of each trade. The tight spreads that ForexCT.com provides its customers is another reason to Open a Free Account with ForexCT.com.


Same price for broker assisted trades
No premium for calling in orders, whether or not you trade Forex via the phone, use market orders, stop orders, limit orders or even contingent orders. In spot Forex currency trading, you do not have to worry about extra charges. Ever wonder why a securities brokerage house charges you more if they have to guarantee you a price than if you give them a market order with no price qualifier? Well you don't have to worry about it if you trade the Forex currency markets.


Trade off your profits
Ever been up on a stock and wished you could leverage that profit and get in a little more of the issue? In spot Forex currency trading you can. Use your open profits to add to your positions. As you gain experience, experiment with pyramid trading strategies. The options are endless because the market is cutting edge.


Superior Liquidity
With a daily trading volume that is 50 x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the Forex markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.
Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.


Leverage
100:1 leverage and more is commonly available from ForexCT.com which substantially exceeds the common 2:1 margin offered by equity brokers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the Forex market. This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.

While the 100:1 leverage can increase positive results it is equally powerful in its ability to decrease results. This is a dramatic tool that and it is important to realize that it can hurt as well as help.

The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over.