Forex Trading Versus Stock Trading

For a number of reasons, Forex trading appeals to more people than the stock market. One of the reasons is the chance for a much greater return. Foreign currency fluctuations of just one or two percent, occurring on a daily basis, have a chance of returning great rewards to an investor who catches a wave of change and properly plans his entrance and exit strategy. Many people also like the fact that more leverage is available with foreign currency exchange. For example, 10,000 dollars can be leveraged to purchase as much as 100,000 dollars through margins. This allows the chance of great returns, even at only one percent, with less risk than might otherwise be necessary.

The Forex market is open 24 hours a day for trading while the stock market is only open during business hours. A Forex trader can literally work 24 hours a day, moving from the Asian market to the European to the American. Couple this with the leverage opportunities then the chances of large profit with Forex are phenomenal. Also, Forex trading is done without paying commissions, which can amount to significant savings.

Many people who don’t understand Forex and have some experience with the stock market immediately think that it is risky and has low profit margins. They come to this conclusion because less information is available on Forex than other types of trading. Forex requires a trader to educate him or herself. A Forex trader needs to read newsletters and find other ways of self-education rather than just turning on CNN or CNBC.

Stocks have their advantage as people can invest in the stock market without knowing too much and will probably do fine. If an investor buys blue chip stocks they are unlikely to go down in value. For long-term savings stocks are fine, but the short term large gains are definitely to be found with Forex.

Many people don’t realize how large the Forex market is. It is so huge that no single investor can corner the market as has happened in the past with some stocks, and also with some precious metals and commodities.

Some people consider the Forex to be risky. Pension funds rarely invest in Forex. However for the smart investor who has time to become educated, Forex can be the way to go. The billionaire George Soros is a prime example of someone who has done well with forex. He shorted the British pound sterling and made $2 billion in profit at one point. He also makes over 60% returns on the Quantum Fund, which he owns and has over $4 billion under management. Of course, Soros has also lost money, but he says “I simply make a lot of money when I am right…and lose as little money as possible when I am wrong.” Soros admits to being right only about half the time, but does very well when he is right. Soros’s philosophy is to look at a country and its stock market and see if current trends are wrong. If he believes that a current trend is overshot then he goes opposite it, and makes a killing.

In October 1987 the stock market crashed and Soros lost a staggering $200 million in just one day! His reply to this was stoic, "I made a very big mistake, because I expected the crash to come in Japan, and I was prepared for that, and it would have given me an opportunity to prepare for the falloff in this country, and actually it occurred in Wall Street and not in Japan. So I was wrong!" While this mistake cost him a great deal, it wasn’t the end of the world. Soros philosophy is if he is right, he makes a ton of cash, and if he is wrong he pays for his mistake and keeps on moving. A prime example of how good money can be made in Forex by investors who are willing to study, learn, invest and take risks. While not for the weak of heart, the chance of a good return from Forex make it the place for daring entrepreneurs to try their hand.

The Forex market is appealing if you’re willing to learn to educate yourself and trade intelligently.
by David McLauchlan