Online Forex Trading has many similarities and many differences from online stock trading. Below are some of the primary differences between the trading currencies and trading equities. Whether you are a $10 Forex trader, just starting out trading currencies, or whether you aspire to be like Warren Buffet, the Oracle of Omaha, you need to understand the differences between stock trading and foreign currency trading.
Online Forex Trading
The forex market is open nearly 24 hours a day. The forex is a traded around the world. Each of the different countries’ markets are open and closed at different times. Traders need access, and the forex provides liquidity, nearly 24 hour a day. As one of the world’s regions ends their market trading day, another region is just beginning.
Online Forex Trading on the breaking news. There is always economic news that is breaking, that will impact the currency markets. This is especially true in recessionary times. If a news story breaks, you do not need to wait for the market in your region to open. You can trade in other regions around the world.
Forex also offers significant leverage, much more than stock trading. For some, this may be thought of as a disadvantage. The Forex lets you trade from a 50:1 ratio, all the way up to a 400:1 ratio, based upon the amount of your initial deposit in your margin account. So, a deposit of $10,000, may allow you to control $4,000,000 worth of currency. In the stock trading account, a margin deposit is not handled in the same manner. In the forex market, your margin deposit may be thought of as good faith deposit which will be used to secure the contract on the purchase of a piece of real estate. Conversely, in the stock market, your margin account may be thought of as the the down payment which would be used to purchase that same piece of real estate.
Trading stocks has more limited hours than online forex trading. In the United States, for example, the stock market is open from 9:30 AM to 4:00 PM Eastern Time. There is also a small, added amount of time for pre-market activity between 7:00 AM and 9:30 AM Eastern Time, as well as some after hours trading from 4:00 PM to 8:00 PM Eastern Time. The stock market is open only five days per week. It is the very liquid during its regular market hours. During the pre-market and after-hour trading periods, the liquidity is extremely limited. In order to trade stocks in other countries, you must first determine if the stock in question is available through your broker of choice via their online trading system. Typically, most stock brokerage houses in the United States are set up to only permit you to trade stocks that are listed on the United States based stock exchanges, such as the New York Stock Exchange (NYSE), the NASDAQ, the American Stock Exchange (AMEX).
Trading on current news stories can be more difficult due to the scheduling issues. Typically investment banks are aware when news is happening about a particular company. This is primarily due to the fact that the have analysts covering these companies, and are able to get the most current information and can therefore determine how to repsond to the news stories appropriately. They are able to act more quickly than the typical, retail customers can.
Stock leverage can typically has a much higher interest rate than forex based leverage. You may receive a margin call if the value of your stocks dips below a certain predetermined percentage of their value. This margin call needs to be corrected very quickly, which results in you selling when values are low, or needing to add liquidity to your account. Margin requirements for equity accounts can be as high as 50% of your available capital to initiate a position, but should probably never be more than 10% of your available equity.
Online Forex Trading has similarities and differences with stock trading. You need to decide which market works better for you. You may trade in both markers. You just need to understand how each operates in order to be a successful trader.