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FOREX
vs. Stock Trading
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There are a few major
differences between Trading Stocks
and FOREX Trading.
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Firstly, one of the
major points of FOREX is
the availability of margin. In FOREX
trading, margin is usually offered at a
100:1 ration, meaning if you deposit $1,000
your potential spending capacity is $100,000.
This greatly increases the profit margin
as well as the users buying power. In stock
trading, margin is offered usually at a
2:1 ratio.
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Secondly, the width
of the bid/ask spread and the transaction
costs are very important. FOREX
spreads are normally less than 5 pips, where
each pip is worth $0.0005 cents. That brings
the total cost per FOREX
transaction to less than a penny. This is
less than 10% of a stock transaction, which
could be up to a .125 spread. Then, the
transaction fees for FOREX
are nearly nonexistent, where in stock trading,
each trade can cost anywhere from a few
dollars to $100 or more when you use a full
service broker. Obviously, the transaction
and bid/ask spread can accumulate into a
large amount of money fairly quickly.
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| Finally, issues of liquidity. Because of
the fact that the FOREX market
is nearly 50 times larger than that of the
US stock market, there is always a demand
for any currency that you may be willing to
buy or sell. This makes sure that prices are
stable and that a trader can always be offered
the fair market price. This is not the case
in stock trading, where any big transaction
can cause massive fluctuations in the value
of a company and its stock. |
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