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Wednesday, April 29, 2009

Advantages Over Stock Trading and Futures Trading

Until recently, day traders have focused their efforts predominantly in the stock and futures market, despite the size and global reach of the foreign currency market (also know as the forex market). The reason for this has been mainly the restrictive nature of currency trading services offered by banks. Currency Trading USA offers both online currency trading and traditional phone currency trading services to the everyday investor. Only $2,500 are required to open a currency trading account. The list below explains some of the advantages of currency trading over stock and futures trading.

24-hour currency trading

Foreign exchange market trading occurs over a 24 hour period picking up in Asia around 23:00 GMT (6:00 PM EST) Sunday evening and coming to an end in the United States on Friday around 22:00 GMT (5:00 PM EST). So, whether it's 6 PM or 6 AM, somewhere in the world there are buyers and sellers actively trading foreign currencies. Traders involved in currency trading can always respond to breaking news immediately.
Although after-hours trading in stocks can be achieved via ECNs (electronic communications networks) and in futures via electronic systems like Globex, the prices can be uncompetitive since the liquidity is often low. For foreign currency trading this is not the case. The currency trader can get tight spreads around the clock and can thus pick and choose whatever trading hours are the most convenient for him.

No Commissions

Online discount brokers typically charge anywhere from $5 to $30 a stock trade. Full-service brokers usually charge $100 or more for each stock transaction. Futures trades can be from $10 to $30 a round turn. Forex trading with Currency Trading USA is commission free. Thus, investors involved in foreign currency trading could limit the cost associated with trading. Currency Trading USA is compensated through the Bid/Ask spread..

Lower operation fees

To be a serious stock day trader, a person needs a direct access trading system. These systems can cost from about $250 to $400 or more a month. Currency trading can be done through a sophisticated online system for free. Our Currency Trading USA trading platform is top-of-the-line and has the same (or more) features that quality stock trading systems provide. The main difference is that our currency trading system is free

Tighter Bid/Ask Spreads

If we compare our currency trading platform's typical spread of 3 pips on a the EUR/USD currency pair to a stock transaction, we could see how online currency trading could offer tighter spreads than stocks. A 3 pip spread (0.0003) on 1 lot (100,000 per lot) is $30. If a stock trader trades a stock with an average price of $25 a share, he would have to trade 4,000 shares to reach the 100,000 value of one currency lot. Assuming the stock is very liquid, the spread would vary between 0.01 to 0.02 or more per share throughout the day. This is equivalent to $40 to $80 per transaction, much higher than for our currency trading example.

Low Margin Requirements

Our 100:1 margin (1%) requirement for foreign currency trading allows a trader to control $100,000 worth of currency for only $1,000. This is much higher than the requirement for stocks and futures. The typical requirement for stock trading is 2:1 and 15:1 for futures trading (Increasing leverage increases risk).
The substantial leverage available in the foreign currency market is essential because the average daily move of a major currency is less than 1%. While certainly not for everyone, the substantial leverage available from online currency trading may be useful to traders that employ a disciplined trading style with strict money management principles (High Leverage and low margin can magnify or lead to both substantial profits and losses).

Superior liquidity in the currency markets

The foreign currency trading market has a daily trading volume that is larger than that of all the world stock markets put together. This means that there are always currency broker/dealers willing to buy or sell currencies in the forex markets. Consequently, price stability is assured, especially for the major the major currencies. Currency traders can almost always open or close a position at a fair market price; a key advantage of currency trading.
Because the stock market and other exchange-traded markets only have a fraction of the volume of the currency market, these investors run a greater risk of having wide dealing spreads or large price fluctuations while trading.

No Limit up / limit down in the currency spot market

Under certain price conditions, the number and types of transactions that a futures trader can make are limited. The futures market restricts a trader from initiating new positions and only liquidating existing ones, if the price of a specific currency rises or falls beyond a specific predetermined daily level. This is an artificial way to control daily price volatility. This mechanism is meant to control daily price volatility, but since the futures currency market follows the spot currency market anyway, the next day the futures price can gap up or gap down to readjust to the spot price. In the foreign currency spot market these artificial restrictions are nonexistent, so the trader can trade freely without limitations, applying his trading strategy with stop losses to protect himself from unexpected price fluctuations caused by high volatility.

No short-selling restrictions in currency trading

There are no restrictions to sell currencies short, unlike stocks which have to be sold short on an Uptick rule. This means that with currency trading you can make money just as easily in rising and falling markets. This advantages is especially attractive to currency day traders who want might want to sell a currency short quickly, without any possibility of the trade being delayed by artificial means.
All of these advantages make currency trading superior to stock and futures trading in may ways.

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