Whether or not you are a entire beginner or basically understand rather a great deal about buying and selling, it is really important to have a distinct mind when it comes to having to grips with the mechanics of your trades.
This article will appear at some of the comparisons between currency trading – if not recognized as currency trading, the foreign trade market or often only Forex – and stocks, the shares into which possession of a distinct company is divided and which are also tradable devices.
What is the difference concerning currency trading and stocks?
While there are quite a few variances amongst investing currencies and stocks and each and every has its own positive aspects and negatives, beneath are some of the things you should really contemplate:
Town Index presents far more than 80 currency pairs. When making a trade you will always be both Getting or Promoting the initially named currency in the quoted forex pair. A trader who buys euros in the EUR/USD market thinks the euro is set to carry out better relative to the dollar a trader who sells in this current market thinks the opposite will be the circumstance.
As for stocks, traders can elect to buy equity in any company whose share price they believe has scope to rise. There are also additional instruments, known as derivatives, which include options and futures. These offer greater flexibility and are usually suitable for experienced or institutional traders aware of the additional risks involved and how to manage those risks.
When buying equity in the traditional sense you must first BUY shares before you can sell them with certain types of derivatives a trader who forecasts that a company’s stock is headed downwards can get involved immediately in “shorting” the stock without prior ownership of it.
With its high liquidity, volatility and 24-hour-a-day trading opportunities during market hours, forex offers traders plenty of scope to buy or sell within individual currency pairs, and without requiring access to derivatives.
Forex: High liquidity can mean easy access and narrow spreads
Usually when liquidity is high, you have what is termed a “tight” market and spreads – the difference between the buy and sell prices – are low: this is a good thing for all traders but particularly short-term traders. Market liquidity can fluctuate throughout the day as different sessions open and close around the world and it varies greatly depending on the FX pair.
When it comes to equities, liquidity is usually strong compared to many other asset classes. But like FX, not always. Some shares typically trade more actively than others. The most liquid stocks are usually identifiable by their average daily volume, which can be in the millions, or even hundreds of millions, of shares.
By contrast, others are traded far less actively, and if you are keen to exit a position in an equity that lacks liquidity it can be tricky to make a cost-effective trade in a timely manner.
Many traders who have not discovered the unique attractions of trading forex, on the other hand, will be pleasantly surprised to discover just how easy it is to enter and exit a market when trading in the major currency pairs during times of increase liquidity.
Trading 24/5: The forex markets are ALWAYS moving
However, increasingly extended hours are being offered to traders through relevant derivative markets.
One major benefit of including forex within your strategy is its customer-friendly round-the-clock nature. They’re open as regularly as hypermarkets, from 10pm GMT on Sunday (9am Monday in Sydney, Australia) until 9pm GMT on Friday (when the market closes in New York).
While this is good news for many traders who want to see markets moving at times convenient to them, it is also a good idea to manage your positions by setting “Take Profit” and “Stop Loss” orders, especially when you are offline to protect your trades from unnecessary losses.
Leverage: The ability to trade deeper within a market
Leverage is normally expressed as a ratio. For example, if your account has a leverage of 30:1, you have the ability to trade a position of £30,000 with only £1,000 of your own funds. In order to maintain your position while trading on leverage, a small amount of money, described as “margin”, is also drawn from your account. (30:1 is the maximum leverage available in the UK).
Leverage, which can also come into play when trading options and futures, is particularly popular within forex and facilitates efficient trading. However, it is essential traders maintain the minimum margin requirements for all open positions in order to avoid any unexpected liquidation of trading positions.
Whichever market you choose, its is important to be aware of the size of your exposure and understand the risks involved.
The mechanics: Understanding the basics of forex
This will allow you to get the feel of our industry-leading platform and see how leverage works. You will have the option of setting “Take Profit” and “Stop Loss” orders that allow you to manage your exposure to the market. And you can do all this without committing a cent of your own money. If you feel you need to learn more about how forex works, our user-friendly educational materials are always on hand. Once you feel confident, you can then open and fund account in just minutes.
At City Index, our intention is to give you all the information you need to help you become a better traders. Read our daily analysis on the biggest trading pairs to get a strong grasp of potential price movements, access trading forums on social media and do everything you can to unravel the ins and outs of forex.
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Forex trading involves significant risk of loss and is not suitable for all traders.