The New York Stock Exchange has over 2,800 stocks listed on it. Another 3,300 or so companies are listed on the NASDAQ.
Which one will you exchange? Do you have the time to keep up with so many businesses?
There are dozens of currencies exchanged in forex, but the majority of market participants trade the seven primary pairs.
Isn’t it true that seven major pairings are considerably easier to monitor than thousands of stocks?
That is just one of several advantages of the FX market over stock exchanges. Here are a few more examples:
24 Hour Market
The stock market is restricted to the opening hours of an exchange.
In the United States, for example, most stock markets open at 9:30 a.m. EST and close at 4:00 p.m. EST. The currency market operates around the clock.
Most brokers are open from Sunday at 5:00 p.m. EST to Friday at 5:00 p.m. EST, with customer assistance often available 24 hours a day, seven days a week.
You can create your own trading schedule by being able to trade throughout US, Asian, and European market hours.
Minimal or No Commissions
As many online stock brokers now provide zero commissions, this is becoming less of an issue.
To trade currencies online or over the phone, most forex brokers charge no commission or additional transaction fees.
Forex trading costs are lower than those of any other market when combined with a narrow, constant, and completely transparent spread.
The bid/ask spread is how most brokers are rewarded for their services.
Higher Trading Volume and Liquidity
The currency market has a daily turnover of $6.6 trillion on average.
The stock market only sees a small portion of this.
Short-Selling without an Uptick
The currency market, unlike the equities market, has no restrictions on short selling.
There are trading opportunities in the currency market regardless of whether a trader is long or short, or which direction the market is headed.
There is no directional bias in the market because currency trading always includes purchasing one currency and selling another. As a result, whether the market is growing or decreasing, you always have equal access to trade.
Minimal Market Manipulation
How many times have you heard that “Fund A” was buying or selling “X”? The stock market is extremely vulnerable to massive fund purchases and sales.
Because of the huge size of the forex market, it is extremely unlikely that any single fund or bank will control a certain currency.
During active trading hours for the major currencies, the FX market is sufficiently liquid that serious manipulation by any single firm is all but impossible.
Banks, hedge funds, governments, retail currency conversion businesses, and high-net-worth individuals are just a few of the participants in the extraordinary liquidity of the spot currency markets.
Analysts and Brokerage Firms are Less Likely to Have an Impact on the Market
Have you recently watched television?
Have you heard about a certain Internet stock and an analyst at a prominent brokerage business being accused of sticking to suggestions like “buy” even when the stock was fast declining?
It is inherent in these relationships. Whatever the government does to discourage this type of behavior, we haven’t heard the last of it.
IPOs are major business for both public corporations and brokerage firms.
Relationships benefit both parties, and analysts work for brokerage firms that require the companies as clients. That catch-22 will never be resolved.
Foreign exchange, being the primary market, generates billions of dollars in revenue for the world’s banks and is an essential component of global markets. Analysts in foreign exchange have minimal influence on currency prices; they merely monitor the forex market.
Next Lesson: Why Trade Forex: Forex VS Futures