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
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.
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