The Key Differences Between Investing in Stocks Vs. Forex
If you're looking to make money investing, keep in mind that there are many ways that you can increase the value of your hard-earned money. You can invest in bank deposits. You can invest in bonds. You can invest in stocks. You can invest in foreign exchange. In fact, the only limit in how you can increase the value of your hard-earned dollars is your imagination.
There are all sorts of investment vehicles out there. There are all sorts of investment opportunities. In fact, you don't even have to look in official investment markets like stocks, bonds, and Forex. You can invest in your friend's pizza shop; you can invest in your relative's plumbing business. Investing opportunities abound with that said.
Recommendation: Looking Into White Gold as an Investment
If you are looking for a fairly controlled or fairly standardized way to increase the value of your hard-earned money, you should consider established investment channels like stocks, bonds, and Foreign Exchange.
Many people looking to invest in stocks often hear about the foreign exchange as well. You have probably heard many of the advantages of Forex trading. The key advantage that strikes many people is the fact that you can make a huge amount of money with foreign exchange in a very short period of time.
It doesn't take much for foreign exchange to move in such a way that you end up with a lot more dollars than you started. With stocks, that is not always the case. You might want to invest a huge amount of money to make money in incremental or small movements of stock, since you are talking about percentages and if you want to make money off, let's say 1% move or half a percent move you'd have to lay out millions of dollars, just so to possibly gain thousands of dollars in a single day's action. With foreign exchange on the other hand, you can make money with smaller movements thanks to margins or borrowing.
Besides the similarities, there are quite a number of differences. Besides these issues there are quite a number of crucial differences that you need to keep in mind.
Recommendation: Why Gold is One of the Best Metals to Invest In
Unlike Forex, stocks tend to have strict trading hours. For example, if you have to be trading in the stocks in the United States, you have to trade within the hours where Wall Street is in operation. This is in Eastern Standard Time, and it's based on market time in the United States.
If on the other hand, you want to trade in Hong Kong, you need to trade in within the hours that Hang Sang or Hong Kong stock market is trading. This is not a small difference. Why? Forex trading is pretty much 24 hours. It's always going on, and there is always market action happening in all four corners of the globe.
This can impact the price of the currencies you are trading once you wake up. You can wake up to a very pleasant surprise or a nasty shock when the foreign exchange you are paying crashes overnight.
Recommendation: Why Include Gold Mining Stocks in Your Portfolio?
Trading Market Place
Unlike stocks that tend to have stock markets and platforms that are located in specific countries, for foreign exchange, it is traded by software.
The market places are distributed all over the world. There is no one specific central marketplace where you can trade dollars for the euro. This is done all over the world by all sorts of financial institutions and small and mid-scale investors. In a very real sense, the trading market for Forex never sleeps. Why? It's all over the planet. When looking for a difference between investing and stocks vs. Forex, keep this in mind, as mentioned above, you might be in for a nasty shock when the foreign exchange pair that you are trading crashes overnight.
On the other hand you can be in for a very pleasant surprise when the pair you are trading produces a very favorable exchange overnight. With stocks, since they are located in specific trading platforms, you can time your trading. You can wait till a particular market opens up and put limits on your orders or schedule your orders accordingly.
Recommendation: Investing in the Best Precious Metal: Which Is the Best Choice?
Fees And Commissions
In terms of fees and commissions, there is mostly no much difference between stocks and foreign exchange. They all involve for fees for either placing a bet and also for fees charged for the broker. With stocks, you get the advantage of a more standardized fees structure. Since it's so competitive, the fees charged by the broker tend to be quite small.
In fact, the long-term trend now has been to a portrayed fee instead of a percentage fee based on the total dollar volume that you traded. With Forex, the key structure is also all over the place. Since there are many different Forex trading platforms and Forex trading software that you can use, it really all boils down to paying attention to the range of fees and percentage being charged. Usually the larger the forex platform, the lower the fees involve.
Recommendation: What Caused the Financial Crisis of 2008?
With stocks, thanks to a big development in software, transaction speed is no longer an issue. It used to be the case that the trading and stock requires a certain time delay and you have to be with a large company to execute a trade quickly. This is no longer the case since many stock trading platforms use the rapid execution.
Transaction speed is not an issue. Trading use a delayed system based on asking a bid system, in other words they would execute your trade in sequence. This can hurt or help you. In larger platforms on the other hand, your trade is more independent. In other words it executed on its own it doesn't have to wait in terms of a sequence. It doesn't have to wait in line for a previous transaction for it to go through. Again this can hurt or help you depending on where the trade is headed.
The main difference between investing in stocks vs Forex is the level of risks and the volume of action. There are many situations where in you can invest in stocks and not having to worry in a lot of volatility because you invest in a particular stock that is fairly stable. On the other hand, you can also invest in highly volatile stocks that can go up and down every day by several percentage points.
Recommendation: Gold Vs. Silver: Which Metal to Invest In?
Bottom Line Between Forex and Stocks
With foreign exchange, the action tends to be more detrimental. We are talking about a fraction of a percent every single day. Unless there is something fundamental that happens with the underlying economy of the currency being traded, and that particular situation it can be anybody's call or as to how wildly the currency will swing, either to the negative or the positive side.
For many investors, volatility is a good thing. It's very hard to make money on an investment vehicle that stays on the same price and moves in a snail's pace. If you are really focused in earning a profit, whether you are trading in stocks or foreign exchange, you would want volatility. In terms of volatility, you can pick the level of volatility risks you pose yourself to by picking the right stocks or picking the right currency pair.
Recommendation: Obama and His Foolish Spending Record