There are many differences between the Forex market and the Stock market. One major difference is the number of trading alternatives available. In Stocks, you have thousands to choose from, where as in Forex, there are very few. There are seven major currency pairs that forex traders focus on (though 4 have stood out as “more popular” than the rest). These pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, EUR/JPY, USD/CAD, AUD/USD and NZD/USD. These are the pairs focused on in the Forex Course offered with the The Academy of Financial Market Analysis. There are many other pairs, as you can combine any of the currencies, known as cross currencies. The fact that there are only a few pairs to trade, it makes Forex trading easier to understand. It forces you to focus on only a handful of pairs as opposed to trying to understand the 10,000+ options within stocks. By keeping-up with economic and political news of the eight major countries involved with Forex trading, you are able to get a better understanding of how the market reacts to certain things.
It often happens where the Stock market hits whats called a Lull. This results in minimal volume and activity. As a result, it becomes more difficult to open and close trading positions. Furthermore, in a market that is declining due to economic issues, as a Stock trader, you are sometimes faced with making extremely difficult choices based on ingenuity and even luck to try to make a profit.
On another note, in the U.S. Stock market, there are strict rules and regulations to follow. Where as with Forex trading, the opportunity to profit lies both within rising and falling markets. Because you are buying and selling at the same time (with each pair, when you buy one currency against the other, you are implying that one will fall, against the other which will rise, or vice versa).
In addition, since the forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position, as is the rule in the stock market.
In the Forex market, margins are low and leverage is high. This is likely because of the liquidity of the market. You will never find such low margin rates in the Stock market. Stock traders require at least half of the value of their investment in their margin accounts, where Forex traders can thrive with as little as 1%.
By now you should have a basic understanding of what the Forex market is, and the benefits to trading Forex vs. Stocks. Next we’ll take a closer look at the “players” in the Forex Market.