When it comes to investing most people have some experience in the share market, whether that be IPO’s such as Royal Mail or the soon to be announced Lloyds offering. However, the same cannot be said to be true of Forex.
The one big difference between buying shares and Forex trading is that the Forex market is international which means it is more subject to international influences. There are limitations and fewer opportunities in stock markets to position one’s portfolio within the market primarily due to lulls which cause shrinking in activity. It is often difficult in a declining market to make a profit easily and short selling is also strictly regulated. In contrast the Forex market enables traders to make gains in rising and falling markets because with every trade you are simultaneously buying and selling and thus short-selling is an integral part of Forex trading.
Additionally, in Forex trading, there is greater liquidity and traders do not have to wait for an uptick before they can enter into a short position, which is one of the rules of the stock market. Such high liquidity leads to low margins and high leverage, something which is not possible to find in the stock market. The majority of stock traders need half the value of their investment available in their margin accounts. Forex traders by comparison need just 1%.
A further advantage in Forex trading is that commission tends to be much lower than in the stock exchange. Forex brokers don’t ask for commission fees on top of their spreads, and the fees that have are due to the exchange. Spot Forex brokers use the spread as their fee for each trade.
Forex is distinctive in that it’s dramatically faster than share trading. Whereas a trader has to get their trade onto the stock market floor, a Forex trader can use programs which can make trading Forex almost instantaneous. Share trading can ultimately take several minutes to execute a single trade. Thus traders are registered much more quickly in Forex which can make a dramatic difference in avoiding losses and making gains.
One dramatic difference between stock exchange and Forex is the trading hours, Forex is a 24hr market whereas the stock market trades during hours set by the exchange. There are essentially 3 phases of share trading markets, a big flurry of activity from 7am GMT as Europe comes online and then as Asia comes to the end of its business day. At around 1pm as the US joins the market there is a further jump in liquidity. All of these forex trading schedules overlap which enables 24 hour online trading.
Being able to trade on the internet electronically has increased the popularity of share and forex trading. Forex trading is more attractive for those investors who want to shortsell and take advantage of a more volatile exchange than the stock exchange. Ultimately share trading is for those traders who want to take a long view and hold onto their shares for months or years rather than short selling. Regardless of whether you want to trade Forex or Shares, it’s important to get good advice from a broker with an investment firm license. Or an online platform which can provide excellent research and help you develop a strategy to make an informed decision.