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Forex Versus Stocks
By: Hana Lee iSnare Expert Author
Stocks have been a popular investment for hundreds of years. Companies issue
stocks to raise capital for expansion and new projects, and each share of the
stock represents a partial ownership in the company.
When the company does well and makes a profit, the value of the stocks rise.
Stock owners can sell their shares for a profit or hold on to the stock for even
more gain in the future. Sometimes companies will issue dividends – part of the
profits that are distributed to share holders.
Stocks are traded on stock exchanges. Most stocks are bought and sold through
brokers who charge a commission or fee for this service. American stock
exchanges include the New York Stock Exchange (NYSE) and the National
Association of Securities Dealers Automated Quotation System (NASDAQ). Most
stocks are only listed on one exchange, although large companies may have
listings on several exchanges.
Stocks were traditionally seen as long term investments. So called 'blue chip'
stocks - those having proven value over many years - may form the backbone of an
investment portfolio. Short term trading is a relatively new phenomenon made
possible with the advent of Internet trading. Day traders attempt to take
advantage of large daily fluctuations in the market by buying and selling many
times in one trading period. It is relatively risky and any profits realized are
reduced by broker commissions charged on each transaction.
Stocks may sometimes be bought on margin, meaning that the investor borrows
money to buy the stocks. Margin rates are usually around 50% - the investor can
borrow as much as half the value of the stock.
FOREX
The Foreign Exchange Market (FOREX) is quite different from the stock exchange.
In contrast to the stock exchange, the FOREX is primarily a short term market.
Most traders enter and exit deals within a 24 hour period – sometimes within a
few minutes. Many FOREX trades can be made in one day without building up a
large brokerage fee because FOREX trades are commission free. Brokers earn money
by setting a spread – the difference between asking and selling prices.
The FOREX is the largest financial market in the world. It is handles
transactions worth $1.5 trillion every day. By comparison, all the American
stock exchanges combined handle daily transactions worth about $100 billion. The
huge volume of FOREX means that it is one of the most liquid markets in the
world. There is always a buyer and seller for any type of currency because the
world economy relies on the movement of goods from country to country. The stock
market is less liquid because participants may choose to hold their investments
or move on to other markets.
The FOREX is not located in any one location. Trading markets are located
world-wide and because of difference in time-zones trades can be made 24 hours a
day, 5 days a week. Trading begins in Sydney, Australia on Monday morning
(Sunday afternoon New York time) and continues non-stop until Friday afternoon
New York time.
Stock exchanges have more limited trading hours. While it is possible to trade
on exchanges world-wide, each exchange is independent and operates for just 7
hours a day. There is no way to buy or sell a certain stock that is only traded
on one stock exchange when that exchange is closed.
Other advantages of FOREX? It is more predictable than stocks. It follows well
established trends; it allows high leverage – typically 100:1 instead of 2:1 on
the stock market; and it doesn't require a large investment – mini accounts as
small as $250 can get you started in FOREX.
About the Author:
This article provided courtesy of http://www.daytrader-futures.com |
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