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This is the first of two articles looking at forex vs stocks from the point of view of the retail stock trader. Forex has been receiving a lot of publicity recently and has attracted many new traders working from home, as well as many stock traders searching to expand into currency trading. But what precisely is the forex market? How does it operate? Global Market Currency trading is a global affair. You are not restricted to dealing in the currency of your own territory. Forex is an over-the-counter market and there is no central exchange or clearing house. This gives the forex market several advantages over the stock market for a retail trader. Transparent Market The worth of a stock is affected by the performance of a company whose information could be manipulated or known to insiders for some time before it is exposed publicly. Currency prices, on the other hand, are driven by the economic implementation of a entire nation. This is roughly unfeasible to manipulate and much more transparent. This means that a trader working from home, out of the loop of undisclosed financial information, is on a much more level playing field in the forex market than in stocks. Liquidity On a daily basis transactions in the currency exchange market total about $4 trillion per day. This is more than the total of all of the world's stock exchanges added together. What is more, there are only a restricted amount of likely currency pairs compared with most likely hundreds of thousands of business stocks. With so much money concentrated in such a inadequate arena, price manipulation by the bigger players is much less of a trouble, if it exists at all. As you can imagine, such high liquidity also means that it is tremendously doubtful that a trade in any of the major currency pairs would have trouble getting matched, even in bad times. This is a huge advantage, especially if you are trading hefty positions. Development So if forex trading has so many advantages, why is it that it is not been admired until recently? The answer is that the market itself only started for real in the 1970s when swap rates stopped being permanently pegged by the 'gold standard' and were permitted to vary. Even then, it was only the banks, hedge funds, and major institutions who were concerned in trading on the currency market at first. There was no history of individual investors getting on the telephone to a broker to deal in currency as there was in stocks. This means that it was not until the development of the internet that the forex market opened up and forex vs stocks became a valid choice for retail traders.
Article Source: http://www.gambling-articles.org
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