Here are a number of differences between trading currencies and trading on the stock market. Here are a few.
Volatility is much less with Forex.
An individual stock can increase or decrease in value tremendously during a one day period. The stock market itself can climb 100 points and then spiral downward in a two day period. Currencies change much more slowly. On a day by day basis, volatility of the major currencies is less than 1%. Profits are made on fractions of a percentage point in change in value
Buy in pairs: sell one currency and buy another one in the same transaction.
Forex trading is done by selling one currency to buy another currency in the same transaction at the same time. Stocks are sold one stock at a time. Each transaction is independent and has no effect on the other if more than one stock is bought and sold at the same time.
Buying on margin
Trading on the margin or leveraged trading, as it is also called, means that you are not required to deposit, or put up, the full value of the trade or position. When trading stocks you can usually only buy 50% of the value of the stock on margin. The remainder has to be deposited in your brokerage account. The brokerage house charges interest on the balance. Trading through a Forex trading platform on the margin means only a small percentage of the lot has to be deposited and there is no interest charged. In fact up to 200 times the value of your account can be leveraged. In either case the buying and selling on margin can substantially increase profits and losses.
There is no centralized exchange system for forex trading. It’s all OTC, over the counter. The transactions between the seller and buyer is conducted by telephone or via an electronic network. There are websites that provide the required network. Forex Trading can take place through accounts set up through the networks. Trading is not centralized on an exchange, as with the stock and futures markets.
24 hours a day from Sunday through Friday
Stock markets open in the morning and close every evening. Not so with forex. The trading begins on Sunday 5:00 PM ET and continues until Friday 5:00PM ET. FX begins in Sydney as the business day starts then continues around the world as each market opens. Tokyo is first, then London, and New York. Forex traders don’t have to wait for a market to ‘open’ to respond to currency fluctuations. They can react to changes caused by economic, political or social events in real time as they happen.
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