Stocks vs Forex: Why Trade Forex?

Stocks vs Forex: Why Trade Forex? -

The Foreign Exchange market, or Forex (FX) for short, is the largest financial market in the world with trillions of the world's currencies being exchanged every day.

It is made up primarily of the world's central banks and other large financial institutions, which facilitate the exchange of one currency for another.

Unlike the stock market, where brokers may have difficulty filling an order on stocks with low volume, the forex market is the most liquid market in the world. The forex market has more than 5,000 times the daily volume of the New York Stock Exchange (NYSE).

Orders are always filled immediately, and forex brokers service as market-makers which increases liquidity even more. They are always taking the other side of your trade, so orders are guaranteed to be filled.

Related: Stocks vs Forex: Why Trade Forex?

How Forex Traders Make Money

Most forex currency pairs are free-floating, which means they are completely subject to supply and demand. This causes the volatility that traders use to make money. A trader can buy a currency pair and profit by selling it at a higher price, or a trader can first sell the currency pair with the intend of buying it back at a lower price.

Due to the ability to short (sell) a currency pair at any time, for any length of time, traders can make money no matter the market direction.

Forex Hours and Volume

Also unlike the stock market, the forex market is open 24 hours a day, 5 days a week. Traders can make a trade any hour of the day, even in the middle of the night.

Although the forex market is a decentralized OTC (Over The Counter) market with no physical location, the operational hours of various timezones affect the hourly volume/activity in forex. The four primary operational locations are: New York, USA; London, UK; Tokyo, Japan; and Sydney, Australia.

Volume in the forex market is higher when the operational hours of these locations overlap, especially when London and New York overlap. However, volume can also randomly increase significantly at any time during the 24 hour day, especially during news events.

Cost of Trading Forex vs Stocks

When trading in the stock market, most stock brokers charge a commission per trade in addition to the profit they gain from the spread of the bid and ask prices. This makes it more difficult for traders to make a profit.

However, in the forex market, the spread is the only cost associated with trading.

Forex brokers do not charge commissions. Furthermore, spreads in the forex market are typically very small, depending on the currency pair and volatility. It is not uncommon to see the difference between the bid and ask price as only a few pips.

A pip is the primary unit of measurement in the forex market. It is generally equivalent to a hundredth of a cent, which means 100 pips equals one cent. However, a lot of money can be made from only 100 pips due to the use of leverage.

High Leverage in Forex

Most stock traders use a margin account in order to daytrade stocks with leverage. Stock brokers may offer up to 2 to 4 times leverage. However, all forex brokers offer at least 50 times leverage (50x), which means you can trade with up to 50 times the amount of money you have in your account as margin.

Someone with $1,000 in their account could trade with up to 50,000 units making each pip worth $5 (when the quote currency is the USD, such as the EUR/USD). Therefore, a 100 pip movement in your favor would be $500 profit from an initial account of only $1,000.

However, leverage is a double-edge sword and should be used with care – it can accelerates your gains but also escalates your losses.

Stocks vs Forex: Why Trade Forex?

It is a lot easier to make money in the forex market than by trading stocks. There is significantly more potential.

For one, it is a lot cheaper to make trades in forex since there are no commissions and the spreads are small. Also, volatility and leverage are important factors in the ability to make money trading, and the forex market has significantly more of both.

Traders can also participate in the forex market 24 hours per day, 5 days per week. They don't have to wait for the market to open every day. They can literally trade when they want, and how they want.

When I first learned about the forex market, I did not want anything to do with it because I did not understand it. Biggest regret of my life. If I had known the significantly greater possibilities it provides for making money as a trader, then I would have learned everything I could about it a long time ago.

Don't make the mistake I did.

Learn all you can.

You can begin by Learning How to Win in Forex.

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