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Is FOREX Trading Better Than Stocks?For hundreds of years stocks have been a popular investment. Companies issue stocks to raise capital for expansion and new projects. Each share of the stock represents a partial ownership in the company. When the company makes a profit, the value of the stocks rise. Stock owners can sell their shares for a profit, or hold on to the stock for even more gain in the future. Sometimes companies will issue dividends -- part of the profits that are distributed to share holders. Stock Exchanges Stocks are traded on stock exchanges. Most stocks are bought and sold through brokers who charge a commission or fee for this service. United States stock exchanges include the New York Stock Exchange (NYSE), the American Stock Exchange, and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Most stocks are listed only on 1 exchange. Long-Term Trading Vs. Day Trading Stocks were traditionally seen as long-term investments. So-called "blue chip" stocks, those having proven value over many years, often formed the basis of an investment portfolio. Short-term trading is a relatively new phenomenon in stock trading, made possible by the advent of the internet. Day traders attempt to take advantage of large daily fluctuations in the market by buying and selling many times in a single trading day. This is relatively risky, and any profits are reduced by the broker commissions charged on each transaction. FOREX The Foreign Exchange Market (FOREX) is quite different from the stock exchange. FOREX is primarily a short-term market. Most traders enter and exit deals within a 24 hour period -- sometimes within a few minutes. Many FOREX trades can be made in 1 day without building up a large brokerage fee, because FOREX trades are commission-free. Brokers earn money by setting a spread -- the difference between asking and selling prices. The FOREX is the largest financial market in the world, with transactions worth $1.5 trillion every day. By comparison, all the American stock exchanges combined handle about $100 billion. The huge volume of FOREX allows it to be 1 of the most liquid markets in the world. There is always a buyer and seller for any type of currency, because the world economy relies on the movement of goods from country to country. The stock market is less liquid because participants may choose to hold their investments indefinitely or move on to other markets. Non-Stop Trading 5 Days A Week The FOREX is not based in any 1 location. Trading markets are located worldwide and, due to time zone differences, trades can be made 24 hours a day, 5 days a week. Trading begins in Sydney, Australia on Monday morning (Sunday afternoon New York time) and continues non-stop until Friday afternoon New York time. Stock exchanges have more limited trading hours. While it is possible to trade on exchanges worldwide, each exchange is independent and operates for just 7 hours a day. It is not possible to buy or sell a certain stock that is traded only on 1 stock exchange when that exchange is closed. Other FOREX Advantages It is more predictable than stocks; it follows well-established trends. It allows high leverage -- typically 100:1 as opposed to 2:1 on the stock market It doesn't require a large investment -- mini accounts as small as $250 can get you started in FOREX. FOREX trading is not without risk. Neither is the stock market. Either trading vehicle requires education, planning, discipline, and some disposable income.
Ron King is a full-time researcher, writer, and web developer. Visit http://www.forex4u-now.com to learn more about this fascinating trading vehicle.
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Calculating FOREX Profits and Losses FOREX currencies are traded in much smaller divisions than cash. Whereas the smallest division in US cash is the penny ($0.01), US currency can be traded on the FOREX in divisions of $0.0001. This smallest division is called the pip (short for Price Interest Point - sometimes just called 'points'). Since currencies are traded in large lots of (say) $100,000 - small movements in value can generate substantial profits and losses. In a lot of US$100,000 one pip is worth $10 so an increase in 40 pips (4/10 of one cent) can generate a profit or loss of $400. FOREX Brokers Most FOREX traders use a broker to handle their transactions. What exactly is a broker? Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor's decisions. Brokers earn money by charging a commission or a fee for their services. FOREX Signals One of the disadvantages of FOREX trading is the time investment needed to monitor the markets for advantageous entry and exit points. It's possible to sit in front of a computer monitor for hours watching the markets. FOREX Trading Strategies To be a successful FOREX trader you need a trading strategy. There is no one set strategy that is good for all traders; rather, each trader needs to develop his or her individual approach to the FOREX. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many successful FOREX traders use a combination of both to get a broad overview of the market and for plotting entry and exit points. FOREX Training Knowledge is the key to successful FOREX trading. The knowledgeable trader has greater awareness of how the market moves and more chances of making profitable transactions. Without knowledge you are shooting in the dark. You may succeed on a few deals but the odds are that you are going to lose in the long run. FOREX versus Stocks Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial ownership in the company. How to Read FOREX Quotes Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price). Introduction to Fundamental Analysis FOREX traders almost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis - technical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading. Risks of FOREX Trading Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses. Trading Currencies on Margin The key to FOREX popularity is margin. Without margin, the FOREX would be beyond the reach of the average investor. So, what exactly is margin and how does it work? |
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