Forex Trading vs The Stock Market

Trading and investments in stocks is common among most of the investors. Gold, silver and other commodities have also been widely used as diversification from equity investments. Off late investments in forex is being advocated as an excellent diversification over traditional investments. Developing and maintaining a well balanced, diversified and growing portfolio of investment is not an easy task for a common Joe.

Well, with the advent of internet and large scale globalization, information gathering process has become extremely easy and fast. Why not make an attempt to learn how the forex trading differs from stock trading?

Market Availability

Forex trading is available 24 hours a day starting from Sydney and moving around globally to Japan, Europe and ending with US. Stock markets around the world are open for a limited duration of about 5 to 6 hours a day.

Trading Costs

Trading in stock markets involves transactions charges, duties and taxes levied by the brokers, exchange and statutory authorities. There are no such charges or taxes in forex currency trading markets. Forex trading brokers include their fees or charges in the form of bid/ask spread which varies from 2 to 5 pips depending upon the broker and the currency pair.

Liquidity

Forex markets witness a daily turn over of trillions of dollars in the global forex trading. With such huge liquidity your trade gets executed in the fastest possible time and at the best rate. In stock markets you may be handicapped due to non availability of buyer or seller at your time and price.

Capital Outlay and Profitability

Due to low margins and high leverage ratio you will need maximum 2000$ to buy 100,000 units of EURO/USD pair. Whereas for buying shares worth 100,000, you will have to pay 100,000$ upfront to your broker. Due to lower margin requirement, it is possible to generate higher profits with small amount of investments in trading forex.

Price Manipulation

Stock markets world over are prone to rampant price rigging, cartelization and other scams as the markets are highly localized. Global forex currency trading markets offer a fair play field with millions of international participants. Chances of any price manipulation by a company, broker, and other financial institution are remote.

Market Regulation

Stock markets are basically exchange traded markets and are highly regulated globally by the respective governments. Majority of the forex currency trading markets are OTC (over the counter markets) and hence there are no centralized regulating agencies. You should make sure that you are trading with a forex trading broker who is registered with the respective country’s financial regulating authority so that in case of a dispute you can seek justice.

Portfolio Monitoring

Even if you have a diversified portfolio of only blue chip companies, it is very difficult to monitor individual company’s financial standing on a regular basis. Unlike stocks, forex trading is highly concentrated with just 7 or 8 forex currency pairs constituting the bulk of the trades.

Conclusion

Despite the profit potential of forex trading higher than stock trading, the risk factors involved are also greater. Stock trading involves lesser risk compared to forex trading. Make sure that if your risk taking appetite is higher then only you should venture out in the online global forex trading business.