Wednesday, December 07, 2011

Difference between Forex trading and Stock trading

Forex trading differes from Stock trading due to following reasons:

  • In Stock markets you have companies from different sectors, say thousands in numbers but in Currency market trader mainly deals with leading currencies in the world. The Major currencies count for majority of transactions. They are US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pount (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), New Zealand Dollaer (NZD) and Swiss Franc (CHD). These are traders favorites and high volume currencies.
  • The Stock market has a particular time of opening and closing and traders trade in that particular period of time but Currency trading is done 24 hours a day in some market or other.
  • Because of the leveraging (margin trading), even a small amount such as $50 can get you exposure to buying 1000s of units of a particular pair.
  • Even a small change (such as 0.0001) in the price can result in a significant return on your investment due to leveraging.
  • The volumes are so high that buying and disposal is easier.
  • Usually there is no account opening fee or even brokerage charges – the forex company’s commission is only the difference between the sell and buy price at any time (buy price will be always slightly more than the sell price at any time).
  • There is no physical shares, documents or dematerialized form of the traded currencies maintained anywhere. The trading system just keeps your buy-sell status.
  • Due to the huge volume nature and global span, currency market cannot be manipulated by traders where as stocks, sometimes, can be manipulated by insiders and market makers.