Comparing Stock Trading to Forex Trading
The Similarities and Differences Between Stocks and Currencies
Because currency trading has only been available on a retail level for less than a decade, many individual investors have hardly even heard of this market, despite the fact that it does more daily trading volume than all of the world's stock markets combined. In this article we are going to compare and contrast the foreign exchange market with the stock market, and I will let you determine which is a better fit for you.
The biggest major difference that comes to mind has to do with the number of choices available. In currency trading, you are not so much 'buying' or 'selling' a certain currency as you are taking one currency and exchanging it for a different one. For this reason, the major world currencies are traded in pairs, and there are only around 8 or 9 major currency pairs that all of the forex traders in the world focus on.
In stocks, however, there are thousands of different companies to choose from. This can be both good and bad, depending on your point of view. Most die-hard forex traders espouse this as a benefit, because they only need to analyze a handful of currency pairs while stock traders need to analyze dozens of stocks or more. While this is true (and to avoid information overload, some FX traders have success only focusing on one currency pair), there are other aspects to having so many different stocks that many of these forex traders do not realize.
One of these benefits is the relatively low level of capital that makes up each company's stock, even if it is a large, publicly traded corporation. You see, the trading volume on the forex market is so huge (hundreds of billions of dollars) that it is *impossible* for any one party to significantly influence price. This is true even for a large investment fund with $3,000 million dollars being managed. However, if that same fund were to take that money and buy up a certain company's stock with it, they could most definitely create a large change in the price simply by buying or selling large amounts.
Another major difference between stocks and forex is the hours during the day in which trading is possible. When you are trading a single stock market such as the Nasdaq or the Nikkei, it is usually only open for about 8-9 hours during mid-day. But since traders in all majors financial centers trade currencies, the forex market literally follows the light around the world, making the forex market accessible at all times of the day.
This non-stop, 24/7 nature of the forex market (you can trade 24 hours per day for 5.5 days per week) can be very beneficial to an individual trader who looks at forex trading as an addtional revenue stream while still holding a day job. If you lived in the eastern United States like New York, Pennsylvania, and Ohio for example, you could wake up early at 3:30-4:00 AM and trade the London market open while you watch the Worldwide Exchange on CNBC, and after trading for a few hours then you could go to your normal job.
On the other hand, if trading is your main profession, then perhaps stocks would be a better choice because you will be able to trade all morning and afternoon and not worry so much about what is happening in Tokyo when it is 11:00PM Eastern time.
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