Trading manual Part 2: Forex vs Stocks

Trading manual Part 2: Forex vs Stocks

A major difference between the Forex and stock market is the number of trading
alternatives (assets) available: The Forex market has very few compared to the
thousands which can be found in the stock market. The majority of the Forex trades
is focussing on 7 different currency pairs. There are 4 major currency pairs;
EUR/USD, USD/JPY, GBP/USD, USD/CHF and there are 3 commodity pairs, USD/CAD,
AUD/USD, NZD/USD. More on that later. All other currency pairs are known as cross
currencies, which are basically different combinations of the same currencies
mentioned above. Currency trading is more easy to follow as you just follow these
instead of picking form 10,000 of stocks to find the best value.

The only thing a Forex trader has to do is keeping up on the information about these major 8 countries.

Stocks market and shrinking volumes

Quite often, the stock markets can hit a lull, resulting in shrinking volumes and
activity. As a result, it may be hard to open and close positions when you would like
to do so. In downward markets, it’s a hard job for a stock trader to make decent or
even small profits. It is difficult to sell in the U.S. Stock market as it knows strict rules
and regulations. On the other side we have Forex which offers you the opportunity to
profit in both upward and downward markets. You are basically buying and selling at
the same time within every trade. So basically shorting is, therefore, part of every
single trade you make. In addition, since the forex market is so liquid, traders are not
required to wait for a swing high in order to enter a sell position which IS the rule in
the regular stock market.

Liquidity of Forex market

Due to the high liquidity of the Forex market, the margin is low and the leverage is high. This is impossible to find on the normal stock market, as it won’t give you such low margin rated. Most margin traders in the stock market need at least half of the value of their investment available in their margin balance. As a Forex trader we will only need as little as 1%! Besides that, commission in the stock market is way higher than in the Forex market. Traditional stock brokers ask for commission fees on top of their spreads, plus the fees that have to be paid to the exchange. Forex brokers only take the spread as their fee for an executed trade.

 

Next part coming out soon Stay tuned!

 

Check out our strategy page: Trading Strategies for forex and crypto

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