Why You Should Trade on the Foreign Exchange Market
A lot of people wonder about whether they should be trading on the foreign exchange market or the stock market. Both of these markets are open to retail traders and they state that they can make you money. However, there are a number of reasons why you should trade on the foreign exchange market instead of the stock market. It is important that you know what these reasons are and whether they affect what you are hoping to achieve through trading.
Foreign Exchange Market Opening Time
The stock market is only open when the local exchange is open. This means you can only buy certain stocks at certain times. While there are a number of different exchanges from New York to London the stocks you can get all differ. The forex market is open 24 hours Monday to Friday and you can trade any currency you want at any time. With the use of online trading platforms every retail trader is able to access the market at any time.
The Leverage on Offer
Leverage allows an individual trader to have more buying power than they really do. Both stocks and forex do offer leverage but to very different levels. The stock market only offers leverage of 2:1 and you have to apply to get this. The application may be turned down if the exchange does not feel that you are able to trade efficiently with the leverage. The forex market offers anywhere from 50:1 to 400:1 leverage or more. All you have to do to get this leverage is open an account with the forex broker. Of course, just because you can get the leverage it does not mean you should be using it. New traders should stay away from leverage as the losses can be great.
What You Are Trading
The stock market has hundreds of different stocks that you could potentially buy. Narrowing the possibilities down to the stock you should buy is not something that most people are able to do. However, when you are trading forex you simply need to focus on the major currency pairs. In fact, a lot of traders do not even focus on all seven of these pairs. Many traders make their money trading only one or two pairs. While both markets do offer you fundamental and technical analysis forex is often easier to understand.
Paying Your Broker
With the stock market you have to pay your broker a commission on every trade you make. The forex market brokers do not get paid through a commission. The spreads that they offer you when you trade includes their price. Once your trade has cleared this spread you are making profit that you do not have to share with anyone.
The stock market is highly regulated and has very strict rules. While this does increase your security on the market it can also restrict you trading. The forex market is largely unregulated and work in an over the counter manner. There are regulators in certain countries that check the forex brokers based in the country. These bodies generally regulate the amount of leverage brokers can offer, close down fraudulent brokers and state the amount of capital the broker must have.