One of the main differences between the stock
and the forex market is the sheer volume of trading that occurs on the
forex market on a daily basis. Almost two trillion Dollars are traded
daily. This amount is much higher than the money traded on the daily
stock exchanges of all the countries in the world combined.
Another main difference between these two markets is that the FX market
is global and that it never sleeps. Stock trading takes place only
within your country or geographical area and you are limited to trading
stocks inside your own country. The stock market is based on businesses
and products that are within the boundaries of a country and because of
trade regulations you as a small investor or retail investor do not
have easy access to foreign markets. If you are living in Africa and
want to trade shares on the New York Stock Exchange you are going to
have a very hard time to try and accomplish this.
The FX market goes a step further as it is truly a global market place
as all currencies are being traded at any given time on some market
somewhere. You can be anywhere in the world and trade any currency you
like at any time. When the North American markets are closed the Asian
and Pacific markets are open and currencies are gaining or losing in
value and is therefore being traded.
The stock market has set business hours. Generally, this follows the
business day, and will be closed on banking holidays and weekends. The
forex market is open twenty four hours a day because of the vast number
of countries that are involved in forex trading and whilst one market
is closing another one is opening. Buying and selling of currencies
takes place in many different times zones.
The stock exchange in any country is going to be based only on that
country's currency and transactions will be conducted in that
particular country's currency, say for example the Japanese Yen can
only buy stocks on the Japanese stock market, or the United States
Dollar can only buy stocks US dollars. However, in the currency market,
you are involved with many types of countries and many currencies and
they all stand in relation to each other and can be traded. You usually
fund your trading account in US Dollars but can trade any currency pair
offered by your particular broker. So even though you may have US
Dollars in your trading account, you can trade the UK Sterling against
the EURO if you so wish.
Currencies can also be traded up or down. When a currency is weakening
you can buy the currencies that it is weakening against and sell the
ones that it is gaining against. So if a currency like the British
Pound is weakening you can trade it by selling it off. In the stock
market generally you only make money when the market is rising or
gaining strength, not when it is weakening. If your stock is losing
value your money diminishes with it. When trading the forex you can
literally "bet" on a currency losing value and make money in the
process.
