JAN 2: The Appeal of Forex Trading Versus the Stock Market

by David Jenyns on January 2, 2007

Forex trading is appealing to many more people than the stock market does and for many reasons. Among the reason is the chance of a much greater return. Foreign currency fluctuations of just one or two percent, occurring on a daily basis, have a chance of returning great rewards to an investor who catches a wave of change and properly plans his entrance and exist strategy. Many people also like the fact that more leverage is available with foreign currency exchange. For example, 10,000 dollars can be leveraged to purchase as much as 100,000 dollars through margins. This allows the chance of great returns, even at only one percent, with less risk than might otherwise be necessary.

Also the market is open 24 hours a day for forex trading while the stock market is only open during business hours. Also many people point out that most forex trading is done without paying commissions, which can amount to significant savings.

Many people who don’t understand forex and have some experience with the stock market immediately think that it is risky and has low profit margins, some would say tiny. They get this idea however because less information in available on forex than other types of trading. Forex requires a trader to education himself. Rather than just turning on CNN or CNBC, a forex trader needs to read newsletters and find other ways of self-education.

Being open 24 hours a day and simply being huge is a big benefit for forex trading. A forex trader can literally work 24 hours a day, moving from the Asian market to the European to the American. Couple this with the leverage opportunities then the chances of large profit with forex are phenomenal.

Of course stocks have their advantage in that a person can invest in the stock market without really knowing that much and probably do fine. If an investor buys blue chip stocks they are unlikely to go down in value. For long term savings stocks are fine, but the short term large gains are definitely to be found with forex.

Many people don’t realize how large the forex market is. It is so huge that no single investor can corner the market as has happened in the past with some stocks, and also with some precious metals and commodities.

Forex is considered by some people however to be risky. Pension funds rarely invest in forex. However for the smart investor who has time to become educated, forex can be the way to go. The billionaire George Soros is a prime example of someone who has done well with forex. He shorted the British pound sterling and made $2 billion in profit at one point. He also makes over 60% returns on the Quantum Fund, which he owns and has over $4 billion under management. Of course, Soros has also lost money, but he says “I simply make a lot of money when I am right…and lose as little money as possible when I am wrong.” Soros admits to being right only about half the time, but does very well when he is right. Soros’s philosophy is to look at a country and its stock market and see if current trends are wrong. If he believes that a current trend is overshot then he goes opposite it, and makes a killing.

In October 1987 the stock market crashed and Soros lost a staggering $200 million in just one day! His reply to this was stoic, “I made a very big mistake, because I expected the crash to come in Japan, and I was prepared for that, and it would have given me an opportunity to prepare for the falloff in this country, and actually it occurred in Wall Street and not in Japan. So I was wrong!” While this mistake cost him a great deal, it wasn’t the end of the world. Soros philosophy is if he is right, he makes a ton of cash, and if he is wrong he pays for his mistake and keeps on moving. A prime example of how good money can be made in forex by investors who are willing to study, learn, invest and take risks. While not for the timed, the chances of a good return from forex make it the place for daring entrepreneurs to try their hand.

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