How does the Forex market differ from other markets?
Posted by Homi .M on 18 September 2012 06:54 PM
The difference may appear to be great between the Forex market and other markets, say equity market. But this is not to suggest that they are similar. Not many of the experienced traders have dared to crossover the boundaries of their trusted market domains unless they made sufficient preparations and studied the new market.

Forex market has unique characteristics despite similarities. Before we discuss the similarities let's see how the Forex market differs from stock markets. So here are the differences.

1    The Forex market is a 24-hour trading market unlike Stock market and is not country specific.
Major markets open at Tokyo and when it closes, London takes over and then the New York market goes live till the next day when Tokyo market opens again.
This seamless continuity isn't available in case of Stock trading.

2   The above point also characterizes that the concept of single exchange trading as nullified and what takes its position is over-the-counter trading.

3   The equity market is the market of countless number of equities that are governed by a number of technical and microeconomic parameters and indices which are all absent in Forex market.

4   Forex market is the biggest exchange market in the world and not even the transactions of the entire world's equity markets' put together can match this even by half. So liquidity is never a question mark.

5   There are no commissions to be paid to the brokers for the simple reason that you are directly dealing in currency and not the securities or bonds which are negotiable instruments and thus have a weakness to fluctuate sharply.

6   Currencies can depreciate over long periods but can never be zero; this is a highly unthinkable scenario in Forex market and traders can hold their short positions for as long as they possibly can without the fear of getting their capital wiped out.

Similarities in the Markets:
Despite all these differences, both markets have some semblance and similarities too. But the similarities are not sufficiently significant, as I said in the beginning, so as to facilitate a walkover across the markets. Let us take a look at the similarities now.

1. The long term trading strategies are same as both require strong fundamental analyses of the stock or the currency pair in question.
2. The concepts of settlements and rollovers are similar.
3. Technical trading parameters are same.

It makes sense for anyone wishing to crossover the markets to gain deeper insights.

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