There are approximately 4,500 stocks listed on the New York Stock exchange.
Another 3,500 are listed on the NASDAQ. Which one will you trade? Got the time to stay on top of so many
companies?
In spot
currency trading, there are dozens of currencies traded, but the majority of
market players trade the four major pairs. Aren't four pairs much easier to
keep an eye on than thousands of stocks?
That's just one of the many advantages of the forex market over the stock markets. Here are a few more:
24-Hour Market
The forex market is a seamless 24-hour market. Most brokers are open from Sunday at 4:00
pm EST until Friday at 4:00 pm EST, with customer service usually available
24/7. With the ability to trade during the U.S., Asian, and European market
hours, you can customize your own trading schedule.
Minimal or No Commissions
Most forex brokers charge no
commission or additional transactions fees to trade currencies online or over
the phone. Combined with the tight, consistent, and fully transparent spread,
forex trading costs are lower than those of any other market. Most brokers are
compensated for their services through the bid/ask spread.
Instant Execution of Market
Orders
Your trades are instantly
executed under normal market conditions. Under these conditions, usually the
price shown when you execute your market order is the price you get. You're
able to execute directly off real-time streaming prices (Oh yeeeaah! Big
time!).
Keep in mind that many brokers
only guarantee stop, limit, and entry orders under normal market conditions.
Trading during a massive alien invasion from outer space would not fall under
"normal market" conditions. Fills are instantaneous most of the time,
but under extraordinarily volatile market conditions, like during Martian
attacks, order execution may experience delays.
Short-Selling without an Uptick
Unlike the equity market, there
is no restriction on short selling in the currency market. Trading
opportunities exist in the currency market regardless of whether a trader is
long or short, or whichever way the market is moving. Since currency trading
always involves buying one currency and selling another, there is no structural
bias to the market. So you always have equal access to trade in a rising or
falling market.
No Middlemen
Centralized exchanges provide
many advantages to the trader. However, one of the problems with any
centralized exchange is the involvement of middlemen. Any party located in
between the trader and the buyer or seller of the security or instrument traded
will cost them money. The cost can be either in time or in fees.
Spot currency trading, on the
other hand, is decentralized, which means quotes can vary from different
currency dealers. Competition between them is so fierce that you are almost
always assured that you get the best deals. Forex traders get quicker access
and cheaper costs.
Buy/Sell programs do not control the market.
How many times have you heard
that "Fund A" was selling "X" or buying "Z"? The
stock market is very susceptible to large fund buying and selling.
In spot trading, the massive
size of the forex market makes the likelihood of any one fund or bank
controlling a particular currency very small. Banks, hedge funds, governments,
retail currency conversion houses, and large net worth individuals are just
some of the participants in the spot currency markets where the liquidity is
unprecedented.
Analysts and brokerage firms are
less likely to influence the market
Have you watched TV lately?
Heard about a certain Internet stock and an analyst of a prestigious brokerage
firm accused of keeping its recommendations, such as "buy," when the
stock was rapidly declining? It is the nature of these relationships. No matter
what the government does to step in and discourage this type of activity, we
have not heard the last of it.
IPOs are big business for both
the companies going public and the brokerage houses. Relationships are mutually
beneficial and analysts work for the brokerage houses that need the companies
as clients. That catch-22 will never disappear.
Foreign exchange, as the prime
market, generates billions in revenue for the world's banks and is a necessity
of the global markets. Analysts in foreign exchange have very little effect on
exchange rates; they just analyze the forex market.
|
Advantages
|
Forex
|
Stocks
|
|
24-Hour Trading
|
YES
|
No
|
|
Minimal or no Commission
|
YES
|
No
|
|
Instant Execution of Market Orders
|
YES
|
No
|
|
Short-selling without an Uptick
|
YES
|
No
|
|
No Middlemen
|
YES
|
No
|
|
No Market Manipulation
|
YES
|
No
|
It looks like the scorecard
between Mr. Forex and Mr. Stocks shows a strong victory by Mr. Forex! Will it
go for 2-0 with Mr. Futures?
