What makes Forex more attractive than Equities

Forex and equities markets are both indispensable for many experienced investors. Here we come to the topic of difference between Forex and equities, comparing Forex with equities market.

A major difference between the forex and equities markets is the number of traded instruments: The forex market has very few traded instruments in contrast to the thousands that are found in equities market. The majority of forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow because rather than having to cherry-pick between 10,000 stocks to find the best value, all that FX traders need to do is “keep up” on the economic and political news of eight countries.

The equity markets often can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when desired. Furthermore, in a declining market, it is only with extreme ingenuity that an equities investor can make a profit. It is difficult to short-sell in the U.S. equities market because of strict rules and regulations regarding the process. On the other hand, forex offers the opportunity to profit in both rising and declining markets because with each trade, you are buying and selling simultaneously, and short-selling is, therefore, inherent in every transaction. In addition, since the forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position - as they are in the equities market.

Due to the extreme liquidity of the forex market, margins are low and leverage is high. It just is not possible to find such low margin rates in the equities
markets; most margin traders in the equities markets need at least 50% of the value of the investment available as margin, whereas forex traders need as little as 1%.

Furthermore, investors who want to profit from Forex trading need more professional knowledge and techniques. Around 85% of all Forex trading is investment or speculative in nature and movements in the market frequently overshoot before correcting themselves. Unlike equity markets, the difference between high and low prices of a currency pair in a given day is usually significant, particularly with high leveraging, and strong trends develop. Investors skilled in studying price movements and predicting patterns and trends may be able to identify these breakouts and profit from them.

In addition, commissions in the equities market are much higher than in the forex market. Traditional brokers ask for commission fees on top of the spread, plus the fees that have to be paid to the exchange. Spot forex brokers take only the spread as their fee for the transaction.

There are a number of differences between Forex trading and Equities trading. And the following may be the ones make Forex an attractive addition to an investor’s portfolio:

• Potential profit in falling markets
• No commissions or exchange fees
• Your money works harder with up to 100 to 1 leverage
• News which is bad for equities may be good for Forex
• Diversification of currencies not offered by other market investments
• Perfect for technical traders
• Investment is in countries, not in corporations
• Forex can be traded 24 hours a day, 5 days a week
• Protection from market manipulation

While it is true that the forex market offers more excitement to traders, the risks are also higher in comparison to trading equities. In the next section, we'll discuss about the risk of the forex market.

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