Forex Market Vs Stock and Futures Market

Market Performance

The Forex market easily outperforms the stock and futures markets regardless of the trend-following system used, be it long-term, medium term or short term. This is because by using fundamental analysis it is far easier to predict the market. The FX market is also less random.

It is no surprise that some of the world' most successful traders are currency traders!

Low Transaction Costs

Transaction costs refer to factors that may affect the ease of executing a trade. Higher transaction costs means less money in your pocket. The lower the transaction costs for trading, the lower the risks and thus the more attractive the market is to active traders.

In the futures market and stock markets or any market with a central exchange, transaction costs include commission charges which lower your profit margins. Transaction costs also include faulty exchanges and the time it takes to execute a trade. For example, in many third world stock exchanges, it might take you days to complete a stock purchase thus adding up the transaction costs.

The transaction costs in the forex market are nearly negligible due to there being no commission fees. The only fees that one pays are the spread which varies from one forex broker to another. The speed of execution of forex trades is also instantaneous and will not diverge markedly from the market clearing prices.

The low cost of transactions gives forex trading a clear advantage over futures and stock trading.

Liquidity

A liquid market refers to a market where participants can rapidly execute large transactions with little impact on prices. Liquidity simply refers to how easily traders can rapidly enter and exit positions they are trading in.

If a market is not liquid, market participants will have delays in filling their orders and may actually get prices they had not hoped for thus affecting the true cost of their trades. For example in an illiquid market if a trader places an order to buy a commodity at $1, there being no other market participants, the order may be filled at $1.5 thus making the transaction cost higher by 50cts.

The advantage of the forex market over other markets is that the forex market is an extremely liquid market with transactions surpassing 1.5 trillion dollars in turnover per day. Compare this to equities at 191 billion dollars and futures at 438 billion dollars daily. Market Transparency
A transparent market refers to a market where all the participants are privy to the same information before making a trade. Investment markets are exploited by those with more information than others. We have seen cases where directors of companies have sold off their shares before bad trading results as they were privy to more information than the average stock trader.

It is also important for market participants to execute their trades at live, executable prices. Offering prices that can not be executed and delayed fills is not a transparent market.

The advent of online forex trading platforms has made spot forex trading very efficient. The ability to trade executable prices is a great advantage for forex traders over other futures or stock traders. When dealing with reputable forex market makers, the forex trader basically gets real time streaming prices with low chances of slippage and market gaps.

Trending Market

A market that is going either up or down in a definable manner is an opportunity to profit. If the price is consistently going up ,then you would profit if you consistently buy. The forex market is always in one trend or another. Due to constant changes in the interest rates between various countries, there is always a trend if one was to look for one.

Compare this to stock trading where the price of a stock can be the same over very long periods of time. Futures are also notorious for periods where there are no significant price changes to create opportunities for profit.

A trending market also lends itself to the use of technical analysis. The best online traders have used technical analysis to make huge profits and technical analysis skills are easily transferable from stock trading to forex trading.

It is a rare day where the forex market is not trending and there being so many currencies to trade, opens up even more opportunity to profit from trending currency pairs. Other Reasons To Trade the Forex Market

No Uptick Rule

In stock trading, if the price of a stock is going down, the stock trader who wishes to join in the short trade must wait until the stock price moves up ( an uptick) before he can join in selling the stock.

It can be very frustrating waiting for this perfect moment to profit in a stock that is falling. In forex trading, there is no such rule and if a trader thinks a currency pair is going to fall, he can easily join all the sellers with a simple market order. The ability to long or short in the forex market with no strange rules means added profits for the forex trader.

No Bear Market

Currencies are traded in pairs. For example the GBP/USD refers to the British pound against the dollar. If you buy the GBPUSD pair it means that you hold the belief that the British pound will increase in value over the USA dollar. If you sell the pair ,it means that you believe that the US dollar will increase in value against the British pound.

What that means is that there is no moment where the value of currency can go to zero unlike stocks. At any one time one of the currencies is losing value against another and the losing currency might actually be increasing in value against another currency.

The currency market ensures that you never have to worry about your currency going to zero as is the case with other traded instruments.

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