Forex and Stocks: mirror images of wealth
Forex trading has somewhat of a mystical aura surrounding it in comparison to the straightforward image of the stock market in the minds of traders. Forex seems intractable, difficult, risky, and unsuitable to beginners and those with less than expert knowledge of trading. The stock market is a well-established concept, with a long history, well-regulated, and well-understood by most traders, regardless of how profitable they are. In contrast, forex is still seen as a new field full of perils and traps for the retail trader, where leverage and volatility ruin the dreams of traders even before they have had a chance to notice why they have failed.
In spite of all these misconceptions, however, the basic concepts behind forex and stock trading are extremely similar. In both cases, to profit you need to buy cheap and sell at a better price. In both market, money management, and emotional discipline are crucial. The same tools of technical and fundamental analysis are used in both stock trading, and forex. Concepts like price earnings ratios, corporate debt, all have their equivalents in currency trading. In a sense, nations are like corporations for forex traders. Their wealth is analyzed, their management is scrutinized, their profitability, and business models are examined by traders to decide on the value of the currency. Indeed, ratings agencies assign safety ratings to nations’ sovereign debt just as they rate the bonds of corporations.
The differences between forex and the stock market are mostly the result of a larger number of options available to forex traders. Stock traders also use leverage and margin accounts, but only forex traders utilize, or are invited to utilize leverage as high as 400:1. If traders did not make use of high leverage, forex would be even safer than stock trading, since, although firms can become bankrupt, nations don’t, they print money. In fact, leverage is ubiquitous in the forex market, because without it trading would be too risk-free and banal. Forex quotes usually move very slowly, and without leverage, the possibility of you losing 30 percent of your account in a single trade is close low.
Should a stock trader be a forex trader at the same time? By all means, yes. This doesn’t mean that the he needs to stake significant amounts while trading forex. Maintaining an account with just $100, and utilizing low leverage would be sufficient towards ensuring that the trader gains all the experience, while losing little. Everyone knows that macroeconomic conditions influence stock market trends greatly. The relationship between commodity prices, currency values, and similar variables and the profitability and stock price of a firm is well-known. Even if your aim is remaining a stock trader for life, the added experience and knowledge from trading forex would make you a better trader.
Forex analysis, and stock analysis, forex charts, and stock charts, in short, forex and stock markets are strongly related to each other, and to be a successful trader, you should have a good understanding of both. Do not waste any time. Begin your new career as a forex trader now. With low leverage, you have a lot to gain, and little to lose.
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