Forex trading turnover is almost 3.2 $ trillion everyday, offering greater advantages to conventional trading markets. Its outlined as following:
FOREX VS EQUITIES
Around the Clock Trading
Forex trading is around the clock, providing benefits over equities trading. Buyers are always actively involved in trading foreign currencies. Traders quickly respond whenever news breaks. Earning reports and analyst conference calls are not affected by after hours
Equities trading has several restrictions for after hour US equities trading such as ECN’s ( Electronic Communication Networks), also know as matching systems; if possible brings together buyers and seller. Chances of carrying out every trade is not assured, or at fair market price. Often traders have to wait for next market with a tighter spread.
Forex trading volume is 50x everyday, that is larger than New York Stock Exchange, broker/dealers are always buying and selling currencies. It helps to ensure price stability of major currencies in the liquidity market. Traders have a choice to open or close at a reasonable market price. Stock market stocks are vulnerable to liquidity risk due to lower trade volume resulting wider dealing spread or larger price movements, responding to somewhat large transaction.
100:1 (&200:1) Leverage
Leverage of 100:1 is usually available from online forex dealers that is far more than usual 2:1 margin offered by equity brokers. Traders post $1000 margin for a $100,000 or 1% at 100:1
Significant leverage available from online currency trading firms is not for everyone but it’s an effective tool to boost finance. In forex market leverage its not just about risk but in fact its necessary because the regular percentage change chief currency is below 1% in contrast to stock with 10% price change on any given day.
Margined trading is strictly followed by a disciplined trading method that constantly apply stop and restrict orders. Planning strict controls that emotions might not take over
Efficient Transaction Costs
In terms of transaction fees and commission Forex is more cost effective to trade. Offering traders access to all the related market knowledge and trading tools for self-direct accounts without any charges. Commission for stock trades range from $795-29.95 per trade including online discount brokers up to $100 or more per trade with complete brokers service.
One more point require consideration is regarding the width of the bid/ask spread irrespective of deal size, normally forex dealing spreads are 5 pips or less ( a pip is 0005 US cents). Generally width of the spread in a forex transaction is less than 1/10 of a stock including a .125(1/8) wide spread
Profit Potential In Both Rising And Falling Markets
The potential for profit always exists in rising as well in falling market. An investor in an open forex position, shorten one currency and lengthen the other. Trader sells in short position in anticipation of decline while in long position the trader buy a currency in anticipation of rise.
Another distinct advantage over equity trading is the ability to sell currencies without any limitations Equity markets in the US is very difficult to set up a brief position because of Zero Uptick rule that discourages investors from shorting a stock unless it directly equals or lowers the price of short sale that follows.
FOREX VS FUTURES
Forex trading or currency trading markets operates 24 hours with over $2 trillion daily turn over. It is the most dynamic market in the world. It’s a major even.
There are significant benefits of forex over currency futures trading. There are philosophical facts like the history of each, their main spectators, and their importance in the contemporary forex markets, to more visible issues like trade fees, surplus, cash flow, convenience of technical and information proposed by each service.
These differences are as following
Big volume is better for Liquidity. Futures currency volume is 1% CME of the daily volume in the forex markets as compared to liquidity has many advantages that forex markets hold over currency futures. It is an established fact that currency professionals are well aware that cash has been dominating since the dawn of contemporary currency markets in the early 1970’s. From every individual traders risk profile currently have full access to the available opening in the forex markets.
Compared to futures markets forex markets presents much tighter bid for spreads. It can be readily seen that in the USD/CHF in the above example that by inverting futures dealing price of 5894 – 5897 brings about a cash price of 1.6959 – 1.6966,8 pips vs the 5 pip spread on hand in the cash markets.
Compared to currency futures trading, forex market offer higher leverage rate and lower margin rates. Currency trading have same rate for all day and all night traders, but futures traders have different rates for day and night traders, its dependent on transaction size.
Forex markets make use of easy and understandable terms and price quotes where as currency futures quotes are inversions of the cash price. Such as a cash price for USD/CHF is 1.71001.7105, the futures equivalent is 58941/.5897; a policy that is only limited to futures trading.
The forex market have no other difficulty of including a forward forex element, to consider any time factor, interest rates, and the difference of interest from currency to currency, where as currency futures prices have many complications such as adjustments, and mathematical manipulation
Currency futures can easily swallow trader’s profits due to trading commission, exchange fees and clearing fees. Currency futures have experienced historical fluctuations since the last ten years. Currency futures are a tiny part of extremely larger market. Currency futures contracts were established at the Chicago (called IMM contracts or international monetary markets futures ) Mercantile Exchange in 1972. These contracts were established for the market specialists, at that time they have accounted for 99% of the quantity generated in the currency markets. Contracts proposals were designed as 99% of the quantity will be generated by markets. Few courageous individuals speculate in currency futures, extremely skilled veterans take over the pits. These contracts were created. Currency futures become a minor event, rather than a hub for world-wide currency connections for hedgers and arbitragers roaming around for small, brief, and inconsistent cash and futures currency prices.
They appear permanent but in reality very few arbitrage windows are open and whenever they do, they are instantly slammed shut by a horde of professional dealers. These changes have reduced the importance of number of currency futures professionals, shut the window further on forex vs. futures arbitrage openings and increased the openings for systematic markets. While equal opportunity is dangerous to the P&L of a currency futures trader, its been the trail out of the labyrinth for individuals trading in the forex markets.