The Difference Between the Stock Market and the Forex Market

[kuazlan]

What is the Stock Market?

The definition of the stock market is simply the business of trading stocks for the financial aspect. Stock refers to a supply of money that a company has raised. Investors give the company this supply of money in order to help that company grow, therefore increasing the value of their stock and in turn making a profit.

The stock market is one of the more traditional ways to create a profit from an investment... even without having much knowledge about it. A person with little experience can make decent profits with no much effort with traditional investments, such as stocks or bonds.
There is always a risk that a company will go bankrupt at any time

There can be a lot of risk involved when trading large gains in short amounts of time. It can be difficult to develop a trading system that can provide a consistent 10 to 15% profit on a yearly basis.

The stock market is country specific, and deals only in business and currencies within that region. There are set business hours that typically follow the more traditional business day, and is closed on Holidays and weekends.

Let's check out the forex market for a change

The forex market, also known as the foreign exchange or the fx market, is the place where currencies are traded. It is the largest, most liquid market in the world with an average traded value of over 4 trillion per day and includes all of the forex currencies in the world. Compare that to the $25 billion per day that the New York Stock Exchange trades and you can easily see how enormous the forex market really is.

What exactly is traded on the forex market? It is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker and are always traded in pairs, EUR/USD or GBP/JPY. Think of it as buying a traditional 'share' in a particular country. Let's say you buy British Pound, you are essentially buying a share in the British economy as the price of the GBP is a direct reflection of what the market thinks about not only the current, but future health of the British economy.

Unlike the traditional stock market, the forex market is open 24 hours a day. At any time, somewhere around the world, a financial center is open for business and is exchanging currencies every hour of the day and night.

It follows the sun around the world, so you can trade late at night or early in the morning. Keep in mind that these additional hours also add additional risk for us since we aren't able to monitor our investments 24 hours every day. There are several safety options, such as limit that we will discuss in another chapter.

Forex Trading In Multiple Currencies

One of the most critical things that you must understand in forex trading is hour to correctly determine the value of multiple currencies.

Obviously not everyone will trade in US dollars.

But with so many variables, how can you tell a good buy or sell without complete understanding of the value of foreign currencies?

Your first step is to figure out the current exchange rate between the currencies in question.

Currency conversion is usually expressed in a ratio known as the cross rate. Normally you will see them listed in pairs in a xxx/yyy manner, with the xxx referred to as the 'base' currency (or home currency).

The base currency is usually always listed as a whole number, while the converted currency will be expressed with a decimal that is as close as possible to the base rate.
EXAMPLE: 1 US dollar = 0.61484 British Pound.

You'll notice that the base currency is almost always in single units (such as one dollar instead of ten). And since the whole number (often referred to as the 'big' figure) of the secondary currency almost never changes, it is usually only referred to at the decimal point.

Also with the consolidation of most of the European market using the Euro, many currencies such as franc or the lira have been eliminated, making trading currencies much less complicated.

It will take a bit of time, but once you get used to the base values of each currency, the changes will become more obvious to you, therefore making it easier and less confusing to monitor and you'll be making profitable trading decisions right along with the pros.

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[Martin Gochev]

Hello Folks,

There are several main differences between Forex and the other financial markets.
1. Size
Earlier we said that Forex market is open 24 hours, 5 days a week, which is the perfect environment for a very high turnover.
2. High opportunity to win or lose
The currency markets are a very good tool to achieve your goals. However, you have to be fully prepared and ready to follow the currency’s trend. If you have a proper strategy and experience, you should be able to make a lot of money.
3. Time
The Forex market is open 24 hours, 5 days a week. In all the other markets, you can trade only in the “traditional trading hours”.
4. Location and Type of products
Thanks to the Internet-based trading platforms, you can buy and sell every currency, from every point of world. In the Commodity market, for example, the physical movement of goods is required.

[Alchemist]

1. The Forex market has significantly more liquidity, so price slippage is usually a lot less than other markets.
2. It has no upward bias over time, so there is an equal opportunity for both long and short trades
3. Trading costs are lower
4. It trends more than other markets, which is good news for trend traders.