Choosing Between Stock Investments and Currency Trading

January 29, 2009 by  
Filed under Forex Trading

When determining what you’ll do with your investment dollars, there are several choices available to you. Many choose to pursue paper investments, such as Forex trading or stock investments, but there are several points to examine with each.

Investing in stocks essentially equates to you investing in the associated company. This means that you own a portion of the company, however small that may be. In contrast, currency is exchanged via Forex trading, which influences the export/import system between different countries.

You may choose to trade dollars against yen, or yen against euros, but the choices are endless in any 24-hour period. Foreign markets are largely influenced by speculation of Forex trades, as are foreign exchange rates. Every minute of every hour, there is a foreign or domestic market available for buying and selling.

Stock brokers will typically lend investors money to account for differences in margins, up to twice the investment. However, currency trading margins are exponentially larger. Up to 100 times the investment is quite common for Forex brokers and firms to lend an individual. These margin calls may even occur while you’re busy doing other things, even while you’re drifting to sleep.

Forex trading cycles are also much shorter than the typical cyclical movement of the stock market. Stocks are usually bought and held for an extensive time period, waiting for the most profit possible before selling these interests. Currency trading will normally complete an entire buy and sell cycle in a matter of minutes to a day.

Given the increased fluctuations, sensitive time periods and attention to detailed market changes required to trade currency, it will behoove any investor to research extensively before jumping in. You’ll also need to ensure you can stomach and drastic highs and lows experienced in very short time periods.

Not only will you want to pay attention to foreign issues and the state of the general market, but you need to stay informed about any imbalances, changing bank policies and other factors affecting the currency exchange rates.

You could find yourself forced into a position that requires your Forex broker to perform a margin call on your behalf. This means you must remain prepared to liquidate when it’s most favorable to you and cover your position.

When choosing a Forex broker and firm, ensure you understand their margin call policies. Most likely, you will be required to sign an agreement stating you understand these practices, so read it thoroughly before you find yourself in an unagreeable situation.

You’ll need to start researching currency exchange rates using currency exchange calculators, which should eventually lead to you easily determining these conversions in your head rather quickly.

One thing you can be grateful for when entering the world of Forex trading is that all of the analysts and experts out there have little influence on the movement of these exchanges. Only world relations and actions not controlled by individuals contribute to the complex and changing values of different forms of currency.

  • a
    a