Advantages of Trading Forex vs. Stocks

You can invest in an up or down market.

Unlike the equity market, with forex there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising, or falling market. (Keep in mind profit and risk are proportional and there is the potential for loss in a rising or falling market.)

Your trading costs are minimal.

T & K Futures is compensated by a portion of the spread. In the equity markets, you must pay both a commission and a spread. Because T & K Futures is compensated for its services through a portion of the bid/ask spread you have the piece of mind knowing that there is no commission gouging. The over-the counter structure of the forex market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders are more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after hours trading.

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You get up to 40 times the level of trading stocks.

Trading forex with T & K Futures gives you up to 20 times the leverage of trading stocks. Before your begin trading, understand that this increased leverage carries a proportionately greater risk of loss. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The leverage is 2 to 1. But with forex, if you invest $2,500 margin on a foreign currency trade, you can control up to $100,000 in currencies or 40 to 1.

You can make trades based on ordinary news items, like changes in interest rates.

If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency market. Traditionally, if a country raises its interest rate, the currency of that country will strengthen in relation to other countries as investors shift assets to that country to gain a higher return. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Determining which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI, and GDP. Generally the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks. There is risk of loss in all speculative investment and many potential interest rate hikes are already factored into the markets.

You can easily and quickly diversify out of U.S. Dollars.

The trade balance shows the net difference over a period of time between a nation's exports and imports. When a country imports more than it exports, the trade balance will show a deficit, which is generally considered unfavorable to that nation's currency. Many investors know that they should diversify some of their assets into foreign currencies, but to do so is difficult. Most U.S. banks, for example, do not offer foreign currency accounts. But by trading forex, you instantly control hundreds of thousands of dollars worth of foreign currencies. For every $1,000 margin deposit, you can control up to $100,000 worth of Euros… or British Pounds… or whatever currency you believe will rise in the future.

If you like technical trading, FOREX is perfect for you.

Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can identify new trends and breakouts, which provide multiple opportunities to enter and exit positions. Please keep in mind that past performance is not indicative of future results.

You can analyze countries like stocks.

Currencies are traded in pairs so if a trader "buys" one currency he is simultaneously "selling" the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade is looked at the closest.

You can trade 24 hours a day.

After-hours stock trading is not a very liquid or easy market to trade. But with forex, you can trade 24 hours a day -- in the largest, most liquid market in the world. That means you never have to "just say no" to trading.

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