The word forex is made up using two words: Foreign exchange. Forex trading refers to any trading in which one buys or sells one international currency against another. Every day, more than $4 trillion worth of forex trading is done all over the world, which should tell us that this is a huge market. Much of the trading is done by institutional investors such as banks and big investment firms using automated systems, but a lot of individual players also invest and trade in forex. Here we shall discuss whether forex trading is the right choice for you as an investor and trader.
Much Less Complicated than Stocks
One difference that stands out between stock investing and forex trading is that the latter is much less complicated. With stocks, you have to sift through thousands of stocks to find out the stock that could prove profitable in the long run; however, with forex, you just have to pick from one of the few top currencies of the world and then try to trade in them. It is simpler to follow the relative value of the American Dollar (USD) vs. the British Pound (GBP), than to track the 500 stocks that make up the S&P 500. Therefore, if you find yourself overwhelmed with the number of stocks you follow, and want a simpler system, then forex may be the right place for you to trade in.
Short Selling is Allowed and Encouraged
In other markets such as stocks, short selling is discouraged because there is a perception that the only way a stock should go is higher. However, since foreign exchange trading is done in pairs, where one currency has to lose for the other to gain in value, short selling is just another part of long selling. Both go hand in hand; if you think that a currency will soon lose relative to another currency, you can go right ahead and short it in the market without raising any eyebrows. If you are a short seller, and like to trade in losing stocks and currencies, then you will feel right at home with foreign exchange trading.
Commission Free Trading
Almost all stock trading is done through a broker, who will take a hefty cut in every deal, whether you make a loss or a profit. This eats into your long term profits, and is definitely something you cannot escape, because that is just how stock trading is done. Compared to that, forex trading does not involve any middlemen, so you won’t feel like you are being taken for a ride when you engage in forex trading. This also means that you can trade as much as you want without worrying about stock broker commission and costs. Therefore, if you are an active trader then forex trading may be the right solution for you in so far as it will save you from the commission taken by stock brokers.
In this article we went over how foreign exchange trading may be the right solution for you for a number of different reasons. Only a single one of these reasons should be able to convince you that foreign exchange trading is much different than stock trading and preferable to it in many ways.