The Foreign Exchange Market is now believed to contain over $3 trillion traded within its boundaries, making it the world’s largest market. Its ability to connect international currencies and value each one according to the laws of supply and demand are extremely unique. Any investor looking for an exciting, innovative opportunity to make an investment in an extremely profitable market should look into the Forex market.
The Forex market is based upon the exchange of a pair of the major currencies within the market, being Euros, US Dollars, Pounds, Japanese Yen, Swiss Franc, and Canadian Dollars. The value of each currency compared to another drives the prices at which each are traded. So investors can purchase a given amount of one currency in hopes that the value will rise in the future, then resell the currency for a higher price, and a profit.
The Stock Market is essentially run on the process of supply and demand but within a different market, and different features. Stock can be thought of as a property portion of a given company. So holding a single stock is essentially holding one single part of that company. These stocks can be traded on the same supply and demand basis in hopes that the value will rise while you hold them, then sold back for profit.
Trading firms in the Stock Market range from single investors to large hedge fund firms on the stock exchange. Transactions can be made in physical settings such as the New York Stock Exchange or from broker to broker via telephone or internet. The NYSE gives a firm setting of the actual trading taking place, which gives investors and viewers the real sense of the excitement.
Differences Among Forex and Stock
Although both exchanges are based upon the same economic principles, there are many differences that investors should consider when choosing which market to invest within.
A major difference lies within the leverage that the Forex market can offer. Investors with a smaller bankroll can make investments that will be scaled by brokers up to 100:1 on every dollar invested. This means if an investor were to place a $1000 investment on a certain currency pair, the broker’s firm would then invest $100,000 into that pair. This can create much larger profits more quickly, but also enables a riskier wager as the losses could easily run higher than the initial investment of $1000.
The Forex market is also open to customers on a 24 hour basis, 5 days a week. The Stock Market tends to run on normal business hours, usually making it difficult for the 40 hour/week worker to engage in the transactions as much as he or she would prefer.
The Forex market tends to be far more stable than the Stock market as well. Because the market is so large, even a major crisis within a given country may have little effect on prices. The Stock Market tends to fluctuate far more, and with the economy now facing harsh times, this stability in the international market may be the best method for investors.
Trends are usually easier to follow in the Forex market as well. The vast amount of stocks within the Stock Market can become extremely overwhelming for individual brokers, but because the Forex market is limited by only a few major currencies, the different combinations of investments allow users to follow the trends.