Forex, the Foreign Exchange Market, is a worldwide market for buying and selling foreign currencies. The major currencies that are traded include the US Dollar (USD), Euro (EUR), Pound Sterling (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), Japanese Yen (JPY), and the Swiss Franc (CHF). The purpose of this article is not to go into the details of how Forex works, but to compare the benefits of trading in the Forex market versus trading in the Equity (US stocks) or Futures (Commodities) markets.
The Forex market is the largest in the world with over $2 trillion traded every day. This compares to the $200 trillion traded daily in the Stocks and Futures markets each. Because of this, the Forex market benefits from fairer prices, price stability, and better trade execution.
Forex has the advantage of being open 24 hours a day. The FX market opens on Sunday afternoon and remains open until it closes on Friday afternoon. The Stocks and Futures markets are only open Monday through Friday from 8:30am to 5:00pm Eastern Standard Time. This allows Forex traders to trade around their personal schedules. In addition, liquidity in the Equity and Futures markets is reduced after normal trading hours.
When trading Forex, you do not incur the commissions or transaction fees that exist in the Stocks and Futures markets. You pay a spread on the currency pair you are trading and the costs are very low, especially when compared to other markets.
Investment leverage in the Forex market can be as high as a 200:1 margin. In the Stock and Futures markets, your average margin is 4:1. This means that you can control $10,000 worth of currency with only a $50 margin.
In the Stocks and Futures markets, investors are expected to fund several thousand dollars to open a trading account. In the Forex market, you can open a mini account for as little as $300 and start trading.
In the Stock market, short selling is very risky and comes with limitations. In the Forex market, you can buy long or sell short any currency pair without limitations or differences in risk.
As an investor in the Forex market, you can focus on only a few major currencies. Seven major currencies produce four major currency pairs that most Forex traders focus on. While in the Equity market, investors have over 40,000 stocks to choose from when thinking about where to invest their money.
There are many factors to consider when deciding which market you want to spend your time and money on. The Forex market provides many benefits over the other major investment markets that will allow you, the investor, to make greater profits, take less risk and spend more time on your personal life and less time investing.