Online Currency Trading – Trading Forex Vs Trading Stocks

In recent years online trading has attracted a large and diverse segment of the population attempting to profit from the various financial markets of the world. Since 2000, that has included the retail forex market.

Investors and traders who wish to trade from home using the Internet as an investment tool will find that the Forex market offers several advantages over stock trading.

24Hour Trading:

The forex market is a true 24 hour market, 5.5 days a week, which offers some great advantages over equities trading. Traders can trade at odd hours, which allows much more flexibility in their personal lives. No matter what time of the day or night, there are always institutions and individuals trading foreign currencies.

Even though stocks and equities do offer some forms of after hours trading, it is seriously limited by the decreased volume (liquidity) that occurs overnight. This means that many trades cannot be executed at fair market values, and increases the trader’s costs of doing business. Because of this, there is no guarantee that every trade will be executed.

Liquidity:

Simply stated, the forex market is many times larger than all of the equity markets combined, and therefore there are always a multitude of buyers and sellers in the market. This high volume ensures price stability no matter what time of day or night.

High leverage:

Because average daily movement of currencies usually ranges around 1%, whereas some stocks and equities can range upwards of 5% or more in a day, a forex trader is able to trade with much higher leverage.

Less margin money is required to trade larger lots of currencies. As always, this leverage can work against a trader as easily as for him, if he does not handle it properly.

Ease of Buying and Selling:

When a currency trader opens a position in the market, whether long or short, he is actually going long one currency and short the other. That is the nature of the foreign currency market. It is just as easy to go short as long.

Equities traders, on the other hand, have to deal with “uptick rules” when going short. Also, equities traders, because of much less volume traded vs. forex, may have a much more difficult time liquidating stocks when the market is moving against them.

Forex trading does present advantages over equities trading, but as in all financial markets, sound money management must be used in order to be profitable.