Reasons Why FOREX Trading Is Better Than Stock Trading Or Futures Trading
Trade 24 hours a day! With the possible exception of a few hours on the weekend, the FOREX market is open around the clock. Compare that to the stock market and the futures market which usually opens at 9:30am and closes at 4pm EST in North America. Due to the global nature of the FOREX market you're able to trade at your convenience, day or night.
2. No commissions. Tired of paying upwards of $30 per trade for a simple stock transaction? You don't have to worry about that when trading on the FOREX market. Your FOREX broker makes their money by taking the difference in price between the ask price and bid price for the currency being traded. This means no money out of your pocket.
3. Instant order fulfillment. A common complaint (and sad fact of life) when it comes to trading on the stock or futures market is that there is often a delay between when you place your order and when it actually gets filled. This can mean the difference between making a bundle and making nothing at all. Due to the incredibly high volume of transactions that occur daily on the FOREX market you can fill your orders instantly based on the real-time data you see on your trading platform. There can be occasions when the market is particularly volatile which can result in some minor delays, but for the most part you get what you see is what you pay for.
4. No middlemen. Unlike equity exchanges, FOREX traders can access the market maker directly without having to go through an intermediary first. This means that a FOREX trader can buy or sell directly from the entity that decides on the price for a given currency pair. Because an extra layer of communication has been eliminated, FOREX traders benefit from cheaper costs and gain quicker access to trades.
5. No unfair influence. We've all seen it on T.V. or read about it on the news - talking heads telling us to buy when a stock's price is plummeting, assuring us that everything will be alright in the end. The truth is that the only one that wins is the firm issuing that so-called advice while the average investor is left to lick his wounds. The FOREX market cannot be influenced by any one brokerage or person as it is representative of a country's economic health and not opinion, and is therefore immune to any attempt at influence.
6. No choice overload. There are over 8000 stock available to trade on the NASDAQ and NYSE alone - that's an awful lot of news to keep up with on a daily basis, and an awful lot of analysis to perform before you begin your next trade. Compare that to the FOREX
7. Limited risk. market which, although it gives you access to dozens of different currencies, tends to focus on the four major currency pairs. This drastically reduces your research time and allows you to enter the market far more quickly. FOREX traders must enable margin limits to mitigate risk. The trading platform of your choice will automatically issue a margin call if the margin amount required by your account exceeds the actual capital available in your account. What this means is that the most you can possibly lose is the money you have sitting in your FOREX trading account. With futures trading it is possible for a margin call to occur at a loss, leaving you liable for any amount not available in your account.
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The biggest problem in Forex trading is the safety of the accounts. In the U.S. the stock market accounts are protected by SIPC and commodity accounts are segregated. On the other hand as a Forex account holder you literally have no protection if the broker-dealer goes bankrupt, you become a general creditor. Many brokers have opened shops in London and Canada, which (in my understanding) those accounts are segregated. Let’s say you have a million dollars and you want to trade your entire $1M in a Forex account, you do not have to deposit the entire million, you can just deposit $10K-$20K and still trade you million dollars. I guess if you have a million bucks you would not worry about losing $10K if your broker dealer goes bankrupt.
I've traded futures and just now considering forex. There are currency futures also, but I'm sure these are no where as liquid as forex (they do move in sync with the underlying pair, even afterhours). However, one feature that I think is important is the availability of options for currency futures. Buying the options cuts your risk way down. You basically know the max risk before you enter, which is basically how much you pay for the option. One thing that makes me scared is the level of leverage on these trades. If I'm making a bigger/longer timeframe bet, I'd probably consider using the option & limit my risk that way. I haven't heard of options available directly for currency pairs as the underlying. If I'm wrong, please let me know where I can find info on this.
Anyways, the use of options needs to be considered, especially for the most risky trades.
I've never traded futures live, just demo. Here would be my comments based on the homework I've done.
1. Not all 24 hours are suitable for trading if you want to shoot for intraday profits. Same concerns futures, they are pretty much dead after the markets close.
2. The commissions in FX by way of the spread are slightly lower than S&P's when we're talking the most liquid pairs (EUR/USD, JPY/USD), though this is a difficult comparison because its really comparing apples to oranges to a degree.
3. As for instant order fills, my understanding is if you're trading just a few contracts during liquid hours you get an instant fill with futures.
4. About middlemen and lower costs, I absolutely do not agree. All prices are supply/demand, and I don't see how this lowers cost per sey. Yes, the exchanges tack on their fees along with the broker's commission, but I factor that into the commissions.
5. As far as unfair influence is concerned, what about the fact that FX dealers habitually front run their orders, which is illegal in the futures market? What about the fact that FX market makers throw prices around left and right? What about central bank interventions? What about the fact that insider trading is permitted in FX? Whether you're trading fundamentals or technicals, there is manipulation going on everywhere.
6. Choice overload - agreed. But there's no reason why you can't just trade a handful of stocks, either.
7. Limited risk - yes, with stock and futures margin accounts with a bad twist of fate you can potentially lose everything you own. Not applicable to day traders usually, but for long term guys yes.
I think you also left one very big thing out - FX is much more amicable to people with small account equity. You can't trade S&P's with anything less than $5,000, realistically speaking more like $8,000 - $10,000.
Another good thing about trading forex.. if you live in the UK/Ireland, you can open forex spread betting account (which is LITERALLY the same thing only its called "spread betting") and you can basically trade forex TAX FREE, 0%.. its exempt of stamp duty AND capital gains tax in the UK/Ireland.. beautifulll !!
"We learn wisdom from failure much more than from success. We often discover what will do, by finding out what will not do; and probably he who never made a mistake never made a discovery."