Advantages of Trading Forex Vs. Stocks

No Commissions

Forex brokers normally do not charge commissions or other charges for currency trading. In combination with the invariable, narrow spreads, the costs involved in the Forex trade are considerably lower compared to any other market.

Liquidity

The Forex market has an average daily turnover of in excess of US$4 trillion, according to the Bank for International Settlements, being this way most liquid market in the world. This high liquidity provides traders with full freedom to open and close short and long positions in spot or derivatives transactions regardless of their size. In addition, the high liquidity makes it extremely difficult to manipulate the Forex market, unlike other markets.

11500 stocks vs. 4 major currency pairs

There are 8,000 listed issues of all sizes, industries and geographies on the NYSE Euronext’s equities markets. Another approximately 3,500 stocks are listed on the NASDAQ not counting the international stock exchanges and OTC markets. Which one will you trade? Got the software? Got the time? In order to trade Forex, a trader should analyze and have in depth knowledge of 4 major currency pairs and/or 34 second-tier currencies.

Better Leverage and Profitability

The leverage effect decreases the required initial margin deposit. For example, if you deposit $ 1000 in your account, you will have the opportunity to open positions in the amount of $ 100,000 using leverage of 1% (1: 100). The rest of the amount you receive in the form of a loan from your broker. Thanks to the leverage, you control 100 times more money, which means 100 times greater profit. Of course, the loss may also be 100 times bigger, so it is important to be careful when you trade. Most simply explained, the leverage multiplies the trader’s results by 100 as it magnifies both profits and losses.

Expert systems

Nowadays nearly all Forex brokers provide to their clients different sophisticated Trading platforms, that allow trades execution and allaying currency pairs through automated expert systems (Expert Advisors). The Expert system is an automated trading system, which is built into the trading platform. Through it the forex trader can create his own indicators, scripts and libraries.

Advantages of Expert systems:

• automatic execution of transactions

• testing of commercial strategies on historical data

• programming of custom technical indicators

• creation of scripts for a one-off performance of certain queries

• establishment of libraries for the storage of frequently used programs

Easy access

With the development of the Internet that sector from the financial markets becomes easily accessible and attractive for different types of investors. The initial deposit for opening a currency trading account is extremely low, thus allowing to everyone to participate on Forex market.

Short sales

Unlike the securities markets in currency trade, there are no restrictions on short sales. The Forex market trading opportunities exist regardless of whether the trader sells or buys, or the market rose or fell. Since the trading always involves buying one currency and sale of another trader has equal access to trading in growing or falling markets.

Diversification

Portfolios consist of securities and fixed-income instruments suffer from lack of sufficient diversification. The investment of the Forex market diminishes the portfolio risk and increase returns.

Lack of Correlation with the stock markets

Currency trade involves the purchase or sale of one currency against another. In this way there is correlation between the international currency markets and stock markets. Bull or bear market, one currency is determined according to the manner in which its value is changed, relative to other currencies.