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Why Forex Trading Is Different Than Stock Trading

  • July 2015
  • Posted By Ninoslav

While few investors consider themselves experts on stock market investing, the average person has had some form of investments in equities. When people actively trade in stocks, they normally restrict themselves to one sector, or even a small range of stocks in a sector. That’s because there are literally thousands of stocks listed on an exchange, and it would be impossible to look into all of them before investing. Most people pay money managers to invest in the stock market for them, and mutual funds make it easy for the average person to put money into equities without shopping around for individual stocks. Forex trading is an entirely different matter.

Forex Has Limited Trading Pairs

Forex has very few products available to choose from. Forex trades are made from pairs of currencies. There just isn’t that many currencies in the world compared to stocks. Most forex traders don’t trade in all the currencies available on exchanges, either. They restrict their forex analysis to a few currencies in order to increase their chances of understanding the fundamentals of the countries involved. Forex traders are most likely to trade in only eight major currencies, and because they’re traded in pairs, there are only four major pairs: Euros and US dollars, US dollars and Japanese Yen, British Pounds and US dollars, and US dollars and Swiss Francs.

Some traders use the information they’ve assembled for one or more of these currency pairs to mix and match the currencies to find additional opportunities. Depending on the size of the forex signals provider they use, they might choose one currency as their primary trading currency, and then look for opportunities in much less prominent currencies.

Forex Requires Knowledge of Whole Countries, Not Single Companies

While there are few trading opportunities in forex compared to stocks, that doesn’t mean that forex analysis is easy. In order to know if forex signals will make money for a trader, they have to have knowledge of a wide array of governmental, economic, and social issues in the countries that issue the currency that they’re trading in. Investors who enjoy keeping up on news in two or more countries can take advantage of forex signals that mean little to non-forex investors because they don’t involve big announcements major corporations about financial information.

One great aspect of forex trading is that the market is always open, and seldom has any kind of lull. Stock markets go through bear and bull periods, and also go through periods where trading volume is very low. That can make it difficult to unwind positions because there are few buyers, and you could be forced to buy and hold or take liquidation prices. With forex trading, you can always enter into trades in any currencies at any time of the day or night, seven days a week, and know that additional opportunities will be there the next day, or even the next minute.



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