When comparing investment ideas, it is quite common to investigate both securities investment opportunities as well as currency swaps on the Forex market – which one is right for you?
Before we delve into the topic of comparing the pros and cons of both securities investments and the Forex marketplace, let us begin by defining both. Firstly, a security is simply a financial instrument that represents a specific ownership position in either a corporation, a creditor related to a governmental body, a publicly traded corporation, or rights to ownership as represented by an option. The security must represent some type of financial value. Securities are generally categorised as either debts or equities, with a debt security indicating money that has been borrowed and must be repaid. An equity defines an ownership interest that is generally held by shareholders within a corporation – often represented as stock.
Forex, on the other hand, is an altogether different financial marketplace that leverages the power of currency valuations to help an investor recognise significant profits. Traders on the currency markets will speculate as to the fluctuations among the world’s various currencies, and then purchase pairs of currencies through an online trading platform. Instead of using a dedicated stockbroker or stock trading program, Forex traders will use either a generic or a customised platform that delivers rapid analysis and quick and easy trading of currencies. Now that we have quickly defined both investment opportunities, let us go a step further and discuss the high level pros and cons of each program.
Marketplace access: Securities are purchased through the world’s leading stock markets, which are generally open for about 7 hours a day. Some traders feel that this is a good thing, as once the trading day is over they do not have to concern themselves with any fluctuations in their portfolios. However, after-hours activity and global news events can affect the opening price of a security during the morning ringing the bell, and there is little that an investor can do until the market opens in the morning. Forex, on the other hand, operates within a trading environment that is open 24 hours a day, 5 days a week. While this can require a more labour-intensive management style due to the extended hours, the around-the-clock access to the markets offers an unprecedented level of control that is simply unavailable when dealing in the stock market.
Risk versus reward: When an investor wants to sell off a securities holding, there may be a slight lag time until the sale is completed. In the Forex market, however, trades are often executed almost immediately – a testament to the liquidity and sheer size of the market. From a daily volume standpoint, the Forex market sees more than $5 trillion worth of currency swaps, whilst the New York Stock Exchange witnesses a relatively paltry $30 billion in movement each day. This ability to quickly and easily execute trades can save investors a great deal of money, especially during volatile trading times or when significant news events or global issues arise. Quick trading opportunities and high liquidity equals a lower potential for risk among some Forex traders when compared to those that invest solely in securities.
Leverage: In the Forex market, traders generally have the opportunity to utilise leverage in order to amplify the results of their currency trades. For example, a 150:1 leverage ratio enables an investor to front $1000, while actually investing $150,000 in the currency market. This means that those who have limited working capital can still make significant gains in the markets, but it is crucial that investors understand the risks involved with leveraged investing.
When it comes time to decide between investing in securities and/or entering the Forex market, it is important to understand your own tolerance for risk, your desire to be involved in daily trading activities, and your overall financial goals. Electronic trading and our prolific access to the Internet have opened doors to traders from around the world who can now access an ever-growing variety of markets with ease. Though online securities trading platforms have existed for years, modern, easy to use, and robust Forex trading platforms are now easier to use than ever and can provide the ideal foundation for any successful trader.
Give Forex trading a try. Start by educating yourself. Learn all you can about the currency markets and the key terms and concepts within the market, and then conduct demo trades to gauge your comfort and overall ability when it comes to making effective currency swaps. Billions of dollars have been made in Forex, and with the right partnership you too can see significant profits! It takes a keen understanding of specific financial indicators, a strict adherence to various trading models, and a partnership with the right financial trading platform to succeed. Contact the experts at One Financial Markets today to take the first step towards earning significant profits in the Forex marketplace.