Forex trading is a relatively newer phenomenon in the retail trading industry. While people have been trading in stocks for a long time, it is only in the last few years that the Forex markets are now open for everyone to buy currencies. Many people who started off in stock trading thought that currency trading would be similar and took the plunge. However, you need to understand that while both forms of trading, there are many differences between the two kinds of trading options.
Time Of Trading
Forex trading takes place continuously across the week. In fact the markets open on Sunday afternoon in the US when the Australian markets open on Monday morning. The markets continue to operate till the end of the trading time in the US on Friday evening. The weekends are the only time when the markets are shut. On the other hand, stock trading opens and closes each day, starting at 8.30 am eastern time and ending at 6.30 pm eastern time every day.
Liquidity
The Forex markets are extremely dynamic and large. Trillions of dollars' worth of trading takes place in the market every day. It is said that the Forex market is larger than all the stock exchange across the world put together. To give you an idea, the US stock exchange deals in about 200 billion dollars in a day while the Forex market does a turnaround of more than 1.5 trillion dollars.
Level of Investment
While many feel that the Forex markets require high level of investment since the markets are so large, this is a myth. Despite the fact that the markets are big and that there is a standard and minimum lot size, the initial investment in Forex trading is not high. This is mainly because of the fact that there are mini trading accounts that allow you to invest in smaller lots and there is always leverage that you can use to make trades that amount to much more than what you have actually deposited in the bank.
Speed of Execution
The speed of execution of stock purchases and sells depends largely on the broker that you have chosen to work with. The Forex markets are far more dynamic and therefore it is necessary that the speed of execution be far higher. Quick execution is also essential because delays can mean losses in many cases.
Commission and Spreads
There are many Forex brokers like AVAFX that claim that Forex trading is a great option since there are no commissions that are charged on every transaction. What needs to be understood is that while there are no commissions charged by any Forex broker, there is something called the spread that allows Forex brokers to make money. The spread is the difference between the selling and buying price of a currency at a particular time. This difference can remain fixed or can be variable depending on what the Forex broker is offering you.
Purchase Option Available
We all know that there are many stocks that a trader can choose from when trading in the stock markets. All listed company stocks can be purchased and each of these also falls into different niches or sectors too. So while there are pharmaceutical stocks, there are information technology stocks and manufacturing stocks too. Not only one does need to look at the manner in which a specific company performing, but one needs to also take a view of the industry or sector per see. In Forex trading 85 percent of the trading takes place among the 8 main currencies. The effort required to follow relevant news and carry out specific analysis is therefore much less.
