There are marked differences between currency trading and other types of investments. These differences are most noticeable between the forex market and the stock exchange. Here are some of these differences that will help you if you are interested in forex trading.
Volume generated In the Market
The volume of money and trades greatly affects the way an investment market functions. The forex market sees around 2 trillion American dollars on an everyday basis in trades and sometimes this number even rises to 4 trillion American dollars. In contrast, the stocks market sees only around 200 billion American dollars every day.
Therefore, because of the high volume that currency trading involves, the trader gets the benefit of a market which is huge and not controlled by any single entity. Furthermore, traders also see their trades in the forex market being picked up with minimal delays which makes currency trading easier and more profitable.
Hours during Which the Market Is Active
The prime reason for the large volume in the forex market is that it is open round the clock for 5.5 days a week while the stock exchange is only open during business hours on working days i.e. 5 days a week. This means that an individual interested in currency trading will be able to trade as and when he wants and during times where he thinks the profits will be the highest.
Profit Potential Open to Every Trader
One of the biggest downsides of trading in equities is that traders can only profit if the market is rising. This is in stark contrast to currency trading which can be profitable regardless of the direction that the forex market is taking.
In different words, traders can profit in the forex market even if the market is falling and the prices are contracting. This is made possible because traders can short currencies in the forex market.
Cost of Placing Each Trade in the Market
The cost of placing trades in the forex market is also lower than the cost of stocks trading. Currency trading is typified by the fact that spreads can be tight but the best part about the forex market is that transaction costs are extremely low. On the other hand, trading in stocks requires traders to put up with high transaction costs which eat into their profits or add to their losses.
Extent to Which Buying Power Can Be Boosted
Currency trading is highly attractive to the common man because of the scope of increase of buying power in the forex market. The buying power is increased with leverage and in the forex market the maximum leverage a trader can use is to the tune of 400 to one. In contrast, in the stocks market, a trader can only use leverage of up to 4 to 1.
How Much Specialisation Is Required to Succeed?
There are countless types of equities in which a stocks trader can trade in. This can increase the level of knowledge and specialisation required to succeed on the stocks exchange. Contrastingly, in currency trading there are only seven major currency pairs and a few cross pairs to focus on.