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Online Forex Trading - Advantages Over Stocks and Futures

Despite the fact that the forex (foreign exchange or FX) market is by far the largest financial market in the world, day traders have until recently concentrated in stocks and futures. This has been a result of the restrictive nature of forex trading services offered by banks. That is why our company, Forex Trading USA, offers both online trading and traditional phone trading services to the retail investor. To open a standard FX account, customers need $2,500 or more. To open a mini account, $250 or more is needed (even though we recommend $1,000 or more). Some of the advantages that trading currencies offer over stocks and futures are:

Trade currencies during flexible hours

Forex trading occurs around the clock with the rising and setting of the sun. Activity picks up in Asia around 6:00 PM EST (23:00 GMT) on Sunday and ends in the U.S. on Friday around 5:00 PM EST (22:00 GMT). As a result, no matter what time it is, there are active traders in currencies somewhere in the world. Currency traders can respond to breaking market news immediately.

Even though investors can trade outside "normal" markets hours in stocks and futures via electronic communications networks (ECN's) and electronic systems like Globex, the usually-anemic liquidity leads to uncompetitive prices that can't be effectively used for trading. This is not the case in forex. Since a forex trader can enjoy small spreads for most of the day, he can choose a trading schedule that's convenient for him.

Free FX Training for New Accounts

When you open a trading account with us with $50,000 or more, you will get free live training online from a professional. Find out more about our free forex training. Customers can also receive and extremely practical e-book designed by our trading department when they open a mini account or a standard trading e-book when they open a standard account with $5,000 or more. Even though this e-book is not as in-depth as our live training, it does provide a complete, step-by-step trading strategy to our customers.

A $250-account is needed to trade currencies in the forex market

You can day trade currencies with relatively small accounts. When you visit the mini forex account section of this website, you will discover that with $250 or more you can begin trading in the foreign exchange market. On the other hand, to day trade stocks a day trader needs at least $25,000 by US law. Without $25,000 in his account, the number of daily transactions a trader can make are severely limited. The foreign exchange market does not have this huge restriction.

Different fee schedule

Traders typically pay online discount brokers anywhere from $5 to $30 when they buy or sell a stock online. This commission quickly skyrockets for full-service brokers to $100 or more per transaction. Futures brokers can charge from $10 to $30 per round turn trade. When you trade with us, we make money from the bid/ask spread without charging a commission per transaction. The Futures Commission Merchant (FCM) and the Introducing Broker (IB) get compensated from the spreads between the bid and ask prices. Please read the risk disclosure page for more information.

Free trading platform

The forex trading software our trader use is completely free. You will not have to pay a penny a month for using it. On the other hand, good stock trading platforms (direct access systems) can cost from about $250 to $400 or more a month. This is an added expense in a trader's books.

Smaller Forex Spreads

The spreads available in the forex market are usually lower than those in stocks. Let's make a comparison. The spread on the EUR/USD is 3 pips. A 3-pip spread (0.0003) on standard 100,000 is $30 (0.0003 x 100,000). In the U.S. stock market, if an investor trader a $25 stock, 4,000 shares would be equivalent to a 100,000 currency lot (4,000 x 25 = 100,000). If we are dealing with an extremely liquid (tradable) stock, the spread might fluctuate throughout the day between 0.01 to 0.02 or more per share. This is the same as $40 to $80 per trade, which is much greater than for the EUR/USD. When you add the extra commission that stock brokerage firms charge per trade, the total cost of trading stocks become a lot greater.

100:1 Leverage (1% Margin)

Our traders have the flexibility of using up to 100:1 leverage when trading FX. This is equivalent to a 1% margin requirement. This means that traders only need to deposit 1% of the value of what they are trading; in other words, the forex trader can control $100,000 worth of currency by only having $1,000 in his account. On the other hand, the typical leverage for trading stocks is only 2:1 and 15:1 for futures trading. Consequently, the typical stock investor would need to have $50,000 in an account to buy $100,000 worth of a stock.

The substantial leverage available in forex can be a powerful, profitable tool if used with the right trading strategy and proper money management techniques (you learn this in our free training and in our mini forex ebook). Please note that increasing leverage increases risk.

Superior liquidity

Liquidity or amount of daily trading volume is important. The more liquidity a market offers, the better it is from a trading point of view (easier to get filled, in general). If you put the daily trading volume of all of the world stock markets together, it still won't add up to the daily volume of the forex market! This means that there is always a buyer for every seller; always a broker or dealer willing to trade with. As a result, forex traders can almost always open or close a currency position at a fair market price.

Since exchange-traded markets (like the stock market) only have a fraction of the trading volume seen in forex, investors who participate in these markets run a greater risk of having trading spreads widened or having prices fluctuate tremendously in the middle of a trade.

No up-tick rules to sell short

Unlike in the stock market, forex does not have restrictions on short selling. In the US stock market, there are up-tick rules that come into effect whenever a stock is sold short. Non short-selling rules makes forex trading a much cleaner market to trade than stocks.

To see how beneficial the forex market can be to a trader, sign up for a demo using the link below.

Online forex demo - free for 30 days (Sign up)