Many people are currently joining the Forex Market (Foreign Exchange) for a wide variety of reasons. If you use the internet at all (which you do, since you’re reading this), I’m sure you’ve heard about Forex. Whether you’ve seen Forex blogs, websites selling Forex bots, or ads relating to Forex – you’ve seen it. I’m willing to guess that the majority of people can guess that Forex involves the trading of currencies. Aside from that though, what exactly are the differences between the stock market and Forex trading?
The majority of people learn about financial trading through the stock market – as it is surely the oldest and biggest financial market across the globe, right? Nope, not at all! The Forex market trades some $2 trillion a day, and has been around just as long as the stock market, if not longer. Furthermore, Forex is somewhat easier in comparison to stock markets. I’m speaking from personal experience. Yes, I’m only 17, but I’ve experienced both. I’ve used a practice Forex account, and I’ve always played virtual stock market games. Personally, I found Forex to be a lot simpler.
Differences
- No commission in the Forex trade. Why? Everything is done electronically, simply due to the fact that there is no physical place where trades are done. Everything, yes everything, is online.
- Since everything is online with Forex, the market is open 24 hours a day, for five and a half days of the week
- Even though some stock market investors do use margin, the majority don’t. As for Forex, just about everyone uses margin , and on a much larger scale than used in the stock market. With the stock market, 50% is the point that margin is capped at. For example – if you have $10,000 in your account, you can only purchase a stock valued no more than $20,000. With Forex, the margin ratio is generally 100:1. So if you have $2000 in your account, you are able to control $200,000 worth of currency.
- In the stock market, there are some 13,500+ stocks available. With Forex, there are generally 8 major currencies. Simply said, Forex is a lot less complicated, and easier to follow.
Similarities
- Now, given all the advantages of Forex, it is not completely free. Similar to the stock market, a bid/ask spread doe exist. For example; if you buy $2 in U.S currency for $1.0115 in Canadian currency, and you decide to buy back your Canadian currency, you will pay more than the $2 US you bought to get your Canadian currency back.
- Whether you are in the stock market, or the Forex trade, technical analysis exists – which is commonly referred to as chartology. The principles of this are the same regardless of the asset being traded. Thus, if you’re a guru (or Gooroo as I say) in the stock market, you will be able to apply your knowledge to the Forex trade
- When making a “trade” in the Forex trade, many options similar to those in the stock market do exist. For example, limit orders – the most you are willing to pay, or the least you are willing to receive. Just like the stock market, this system is used in the Forex trade.
As you can see, it does not take a genius to realize that the Forex trade and the stock market have both similarities and differences. If you want to join the Forex trade, some prior experience in the stock market would be useful, but it is not mandatory. Like I said, even I’ve used a Forex practice account. If you like the idea of Forex, but are hesitant to invest right away, try a practice account. You can open a free Forex trading practice account by clicking here. You have nothing to lose by getting a practice account. Open one now and start learning the Forex trade!
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