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Forex
Versus Stocks
Stocks have
been a popular investment for hundreds of years. Companies issue
stocks to raise capital for expansion and new projects, and each
share of the stock represents a partial ownership in the company.
When the company
does well and makes a profit, the value of the stocks rise. Stock
owners can sell their shares for a profit or hold on to the stock
for even more gain in the future. Sometimes companies will issue
dividends – part of the profits that are distributed to share
holders.
Stocks are traded
on stock exchanges. Most stocks are bought and sold through brokers
who charge a commission or fee for this service. American stock
exchanges include the New York Stock Exchange (NYSE) and the National
Association of Securities Dealers Automated Quotation System (NASDAQ).
Most stocks are only listed on one exchange, although large companies
may have listings on several exchanges.
Stocks were
traditionally seen as long term investments. So called 'blue chip'
stocks - those having proven value over many years - may form the
backbone of an investment portfolio. Short term trading is a relatively
new phenomenon made possible with the advent of Internet trading.
Day traders attempt to take advantage of large daily fluctuations
in the market by buying and selling many times in one trading period.
It is relatively risky and any profits realized are reduced by broker
commissions charged on each transaction.
Stocks may sometimes
be bought on margin, meaning that the investor borrows money to
buy the stocks. Margin rates are usually around 50% - the investor
can borrow as much as half the value of the stock.
FOREX
The Foreign
Exchange Market (FOREX) is quite different from the stock exchange.
In contrast to the stock exchange, the FOREX is primarily a short
term market. Most traders enter and exit deals within a 24 hour
period – sometimes within a few minutes. Many FOREX trades
can be made in one day without building up a large brokerage fee
because FOREX trades are commission free. Brokers earn money by
setting a spread – the difference between asking and selling
prices.
The FOREX is
the largest financial market in the world. It is handles transactions
worth $1.5 trillion every day. By comparison, all the American stock
exchanges combined handle daily transactions worth about $100 billion.
The huge volume of FOREX means that it is one of the most liquid
markets in the world. There is always a buyer and seller for any
type of currency because the world economy relies on the movement
of goods from country to country. The stock market is less liquid
because participants may choose to hold their investments or move
on to other markets.
The FOREX is
not located in any one location. Trading markets are located world-wide
and because of difference in time-zones trades can be made 24 hours
a day, 5 days a week. Trading begins in Sydney, Australia on Monday
morning (Sunday afternoon New York time) and continues non-stop
until Friday afternoon New York time.
Stock exchanges
have more limited trading hours. While it is possible to trade on
exchanges world-wide, each exchange is independent and operates
for just 7 hours a day. There is no way to buy or sell a certain
stock that is only traded on one stock exchange when that exchange
is closed.
Other advantages
of FOREX? It is more predictable than stocks. It follows well established
trends; it allows high leverage – typically 100:1 instead of
2:1 on the stock market; and it doesn't require a large investment
– mini accounts as small as $250 can get you started in FOREX.
About the Author:
Hana Lee
This article provided courtesy of http://www.daytrader-futures.com
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