When you think of Forex, it is important not to confuse Forex trading with ‘playing the stock market.’ They are two very different things, and it is important to understand the difference. Let’s take a look at stocks and Forex.
Stocks are traded on a stock market, such as the New York Stock Exchanges (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ), and this has been so for as long as stock markets have existed. When you purchase stock, you are essentially purchasing a share, or shares, in the company that is selling the stock. Companies sell stock in order to raise money to grow the business. When you buy stock, you are investing in the business.
If the company that you’ve invested in does well, the value of your stock rises. If it doesn’t do well, the value drops, meaning that it will no longer be worth as much as you bought it for. Obviously, the entire successful notion of buying and selling stocks is to buy low, and to sell when the price is high. In many cases, this is the only way that you see a return on your investment, but many companies pay out dividends to their shareholders as well, where a percentage of the overall profit is paid out to investors, based on how much stock in the company the investor owns.
Stocks are traded through stock brokers. Stock brokers earn a commission on the stocks that they trade, which is paid by the investor. Stocks may be listed with one stock exchanges, or on several stock exchanges. Stocks can be either long term or short term investments, but ideally, they are long term investments. If you deal in stocks, you should have a diversified portfolio, covering several different industries, and including several ‘blue chip’ stocks, which have proven to remain steady over numerous years.
Short term stock trading is very risky. You may know the short term stock traders as ‘Day Traders.’ Day traders are short term stock traders who try to profit from the daily fluctuations in the stock market. They often buy and sell several different times during the day – buying low, and selling high.
Like Forex, some stocks can be bought on margin. This means that the trader borrowed the money to buy the stock. Margin rates typically run around 50%, meaning that the investor can borrow about half of the value of the stock.
Forex is the Foreign Exchange Market. While stocks may be bought for long or short term, trading currency is always short term trading, with investors buying and selling a currency within a 24 hour period. While Forex trades are made through brokers, they are essentially commission free, and the fees are based on a spread, which is the difference between the asking price of the currency and the selling price of the currency. You can visit ChangeCurrency.org and find our more about the ins and outs of how currency markets are set up, and how they work.
Forex is not a stock market, it is a financial market. In fact, it is the largest financial market in the entire world. While the Stock exchanges in the United States have transactions in the neighborhood of $100 billion per day, the Forex market has transactions in excess of $1.5 trillion dollars per day. While stock exchanges are located in specific places, such as New York, there is no specific place for the Forex. There are trading markets located around the world.
Another advantage of the Forex is that it is open twenty four hours per day, five days a week, whereas the stock markets are only open seven hours, five days a week. This makes Forex traders very happy, because they can buy and sell currencies whenever they feel that the time to buy or sell is right, instead of having to wait for the market to open.
The Forex is also a great deal more predictable than stocks, and it doesn’t take a great deal of money to get started with Forex trading. For instance, you can open a mini account for as little as $250!