Forex vs Equities

For investors and speculators using the internet as an investment tool will find that the Forex market offers several advantages over equities trading:

24-Hour Trading

Forex is a true 24-hour market, which offers a major advantage over equities trading. Investors are able to make trades around their family, business and social life. Whether that works out to be; 8:00 am, 2:00 pm or even 2:00 am. No matter the time, there will always be buyers and sellers actively trading foreign currencies. This flexibility in trading hours means traders are always able to respond to breaking news immediately.

After hours trading in equities has several limitations, in the US for example equities traders have access to ECNs (Electronic Communication Networks), also known as “matching systems.” These networks are established to provide a method for equity traders to buy and sell amongst each other. These networks don’t offer as tight of spread as normal market hours, most trades are not executed at a fair market price and there is no guarantee that every trade will be executed.

Unmatched Liquidity

With a weekly volume equivalent to one year’s trading volume than the NYSE (New York Stock Exchange) there is no shortage of buyers and sellers in the Forex market. With the vast number of traders involved in the Forex market, the trading volume offers price stability and a consistency in fair market pricing.

Equity traders on the other hand are more susceptible to liquidity risk and are subject to potentially wider dealing spreads and larger price movements. Liquidity in the equities market are no match to the liquidity that the Forex market offers.

400:1 Leverage*

400:1 leverage* is one of the highest levels available to online Forex Traders. This leveraging power enables a traders to have a $25 margin controlling a $10,000 position or 0.25% of the position value. The substantial leverage* that is available to online Forex Traders is a powerful tool. Please be advised that this high degree of leverage* can lead to substantial losses as well as gains. The need for such enhanced leverage* capabilities is vital in the Forex market as a result of price stability and liquidity associated with the market. Such stability, liquidity and 24-hour access result in an average daily percentage movement of 1% on major currencies, compared to the volatility of the equities market that can easily have movements of 10% a day.

Please refer to our Understanding Margin and Risk Management sections for effective strategies on managing such leverage*.

Lower Transaction Costs

The Forex market, in terms of commissions and transaction fees, is much more cost-effective than equities or even Futures. Trading Intl works with Brokers that offer some of tightest currency pip spreads available to Forex traders without charging additional commissions or fees on trades. T here is also NO additional fees for stops, limits or other orders that are associated with trading in the equities market, which can range from $4.95 - $100.00 per order depending upon one’s broker. For example an equity trader using a discount broker that offers a typical price of $4.95, could be costing a trader as much as $14.85.

For Example:

“Equity Trader Z” buys ABC stock and places a stop-loss order and a limit order to make sure that they are fully protected against market downturn and locking in potential profits. In this example, this trade could have cost Equity Trader Z $14.85. $4.95 for the original buy order, $4.95 for the stop-loss order and another $4.95 for the limit order.

In addition to the fees and commissions charged when trading equities, one must remember the bid/ask spread. Most brokers have a 3 pip spread on EUR/USD which could be 1/15 that of a stock transaction, which can include a .125 (1/8) wide spread.

Profit Potential In Both Rising And Falling Markets

Keep in mind when trading in the Forex market an investor is always buying one currency and selling another. Unless there is virtually no change in value between two currencies, one will always be appreciating, while another is depreciating. Now the question is which side are you investing on? Forex provides the ability to make money under any market conditions if you are positioned on the right side of the market. Equities traders have a much more difficult time dumping or liquidating stocks when the market is moving against them.