What are the Differences of Forex and Stock Market?
Last Updated on Friday, 30 September 2011 06:41 Written by FxTT Content Department Friday, 30 September 2011 06:39
Forex market is huge as compared to stock market. There are many benefits and advantages of trading forex compared to stock market. Some of the advantages and disadvantages are given below.
Advantages of Forex market compared to stock markets
Forex: a 24 hour market
Most forex brokers are open from Sunday at 4:00 pm EST until Friday at 4:00 pm EST, with customer service usually available 24/7. You can trade during the U.S., Asian and European market hours. Forex market is perfect for those who want to trade on a part-time basis, because you can choose the time when you want to trade.
Leverage
Forex market brokers allow very large amount of leverage than any stock market does. A small deposit can control a much larger position. Using leverage you can make large profits. For example, a forex broker may offer 20:1 leverage, which means that a $1000 dollar margin deposit would enable you to buy or sell $20,000 worth of currencies.
Minimal or no commissions
Forex market does not have clearing fees, exchange fees, government fees or brokerage fees. Instead most retail brokers charge their clients using the “bid-ask spread”. The large size of volume that takes place in forex market makes the spread very low compared to stock market commissions.
Uninfluenced by Individuals
Forex market is enormous and has so many participants that no single entity not even a central bank can control the market price for an extended period of time. Whereas in stock market, there is a possibility that individuals can corner a particular stock.
High Liquidity
Forex market is extremely liquid. This means your orders will get executed instantaneously because there is always someone who is willing to take other side of your trade. Where as in stock market some stocks are liquid and some stocks are not, thus you may have to wait for your order to execute.
Easy entry in Forex Market
Trading Forex does not need tons of money compared to trading stocks, options or futures. Due to enormous competition forex brokers offer “mini” and “micro” trading accounts, some of them with a minimum account deposit of $25.
Practice for Free
Demo accounts are offered by most forex brokers for free. Demo account is a good way of learning forex without have to put any real money. You can practice build your skills using demo accounts for as long as you want. You can start trading using real money only when you feel you can make profits in forex market.
What are the differences of forex and stock market?
Disadvantage of forex market over stock market
No centralized Exchange
Forex market does not have centralized exchange like in stock market. So the downside of this is that you may have to face problems like manipulated spreads by your broker, forex brokers (especially market makers) often trade against their clients to make money.
Leverage
We have talked about leverage being an advantage compared to stock markets, but we also need to remember that leverage is a ‘double edged sword’, it can work against you and you can lose your whole account in a single trade if you do not use it properly.
