The Major Differences Between Stock Market Investing And Forex Trading

By: James Woolley

Many people have tried their hand at both stock market investing and forex trading but few people manage to become profitable at both. This is probably because they require completely different sets of skills.

When you invest in shares it doesn't matter so much where you actually enter a position because you normally aren't intending to sell those shares for several months or years. Therefore you can ride out any short-term volatility and hope that the share price rises in the long-term when the company hopefully will have increased it's overall profits.

In forex trading it's a completely different story because positions aren't generally held for years, or even months in a lot of cases. Most trades are executed either within the same trading day or at the very most a few days or weeks. The objective of forex trading is generally to make short-term profits because if you hold on to positions for too long you will end up incurring quite high costs.

Another major difference is that you can generate significant profits without needing a large amount of capital. This is all thanks to leverage because you can trade positions of up to 100, 200 or 400 times greater than your overall capital. Of course you need to be careful not to over-leverage yourself and expose yourself to too much risk, but the option is definitely there to start trading with a small amount of capital.

You will also find that forex trading is a very stable form of trading the markets. By this I mean that you can trade 24 hours a day and not have to worry about any external distractions that will move the markets.

The only thing you really need to be aware of are the important economic data releases and when they are due to be announced. These announcements can move the markets but in general you can just concentrate on technical analysis (which is much more reliable when applied to forex pairs) and trade all day long, or whichever hours are most convenient for you. There's no need to worry about profit warnings or surprise trading updates which can wipe out your capital in an instant when investing in shares.

So overall there are some significant differences between stock market investing and forex trading.
The two disciplines require two completely different sets of skills, although forex trading is often seen as being more exciting and potentially more profitable if you have a profitable system because you can trade lots of short-term positions, and you can multiply these gains by using leverage as well.

Article Source: http://yourfinance.co.za