Beginners who choose to get involved in the Forex market sometimes feel like they are in over their heads. They try to compare the market to other financial markets that they are familiar with like the stock market or the bond market. This usually leads to lost money along the way, because of the subtle differences in these markets. If you are confused about what is different with the Forex market, here are a few things to consider about currency trading against other types of trading.
One of the biggest differences between the Forex market and other financial markets is the amount of time that you can trade. With financial markets such as the stock market, you can typically only trade during the week day from about 9 AM to 4 PM. With the Forex market, you can trade 24 hours per day. The Forex market is a global market and it is not hosted in a central location. People are trading around the world and this makes it possible to trade anytime you want. This makes it an ideal market to get involved with for people who have regular jobs and cannot sit in front of a computer screen during the day. The only time that the Forex market is closed is on Saturday and for part of the day on Sunday.
Another difference with the Forex market is the transaction costs. If you are familiar with trading in the stock market, you are probably used to paying your broker a commission on each trade. You also probably have to pay the spread between the bid and ask prices on the stock. When you trade in the Forex market, you don’t have to worry about paying commissions with most brokers. Instead, you only pay the spread each time you place a trade. For most traders, this results in significantly lower transaction costs over time.
When you trading the Forex market, you may be confused about the leverage that your broker offers. In order to trade in the Forex market, the vast majority of traders use leverage on every trade. With leverage, you can control a much bigger amount of money than what you deposit into your account. Some brokers provide you with leverage of up to 500:1. This means that you are controlling and amount of money in your account that is 500 times bigger than what you deposited.
In the stock market, most people don’t trade with leverage. If you do trade with leverage, you have to open a margin account and you can trade with a maximum leverage of 2:1. With the stock market, you are actually borrowing money in order to trade more. In the Forex market, you’re not really responsible for the money that you are risking beyond your own deposit. For example, if you are trading at $100,000 lot, you’re not really risking $100,000 that you don’t have. You are only on the hook for what you deposited and are trading with.
Easier to Short Sell
If you have traded in the stock market for long, you may understand how difficult it can be to short sell. Short selling is a strategy that involves selling a security that you don’t have in hopes that the price goes down. Then when the price goes down, you buy the security and end up making money on the deal. In the stock market, you have to have a margin account in order to short sell. You also can only short sell when the market ticks upward. If the market is already going down, you can’t place an order. In the Forex market, there are no such restrictions on short selling. Anyone with any type of account can short sell, even if the market is headed downward. This gives you little bit more flexibility in your trading strategy and makes it so that you can profit no matter what.
Less Influence in the Market
When you trade in the stock market, you’re probably used to the idea of big investors influencing it. For example, when a big mutual fund or hedge fund buys millions of shares of a stock, it can drive the price of the stock up. In the Forex market, it’s a lot more difficult for one party to influence the market. The market is so massive that it’s pretty much impossible for one institutional trader or bank to influence the market drastically. This makes it a more transparent and fair market for regular traders.