Let’s consider the differences between instruments traded when trading stock VS trading Forex.
Obviously the nature of the instruments being traded between stock trading and Forex trading is quite different. In the stock market, a trader will buy or sell a share of a specific company in a certain country. There are several stock markets in the world, and these markets are affected by different factors including the local situation of the country to determine the valleys and peaks of the prices of stocks.
Forex trading, on the other hand, involves purchasing and selling pairs of currency. In a Forex market transaction a trader will usually buy one currency from one country, and then would sell the currency from another. Hence, the transaction is referred to as an exchange.
Forex traders generally estimate the rise and fall of the currency trades betting on the monetary policy of a specific country as well as the economic perspectives. These factors affect the difference between the two currencies in the currency pair.
While the stock market is managed by established governing bodies, Forex trading is facilitated by financial institutions operating on certain levels. Banks may form smaller financial firms to serve as Forex dealers to focus on exchanging large amounts of currencies. Because of the issue of sovereignty between two currencies on exchange, the market is less regulated and so more flexible compared to stock trading.
If the video is a bit over your head, I wanted to provide a few additional notes to give you a true beginners introduction to the Forex market. If you are somebody interested in getting started trading from home, you may have heard that the Forex market is a good place to get started. In fact, there are some Forex traders who make millions of dollars without trading any stocks at all!
But, before we delve into talking about forex trading, let us talk about the foreign exchange market. In essence, the foreign exchange market is is where currency trading occurs. Because currencies are valuable to majority of the world’s populace, there is a need for currency exchange to be carried out so that foreign trade and business can progress and develop.
For instance, if you make your home in the U.S. and you wish to purchase wooden tables from the Philippines, this transaction will require either you or the company that you will be purchasing the tables from to pay the Filipinos for the tables in Philippines pesos (PHP). In order for this to happen, the U.S. importer would have to engage in exchanging the equivalent value of USD into pesos.
The same applies when one is traveling. It is not possible for an American tourist to pay in dollars when in London, for the simple fact that the local currency is different. Be that as it may, it is essential for the American tourist to exchange his or her dollars into the local currency, which is the Great British Pound or GBP. This is the basic premise and necessity of forex trading.