By Ron King
For hundreds of years stocks have been a popular investment.Companies issue stocks to raise capital for expansion and newprojects. Each share of the stock represents a partial ownershipin the company. When the company makes a profit, the value ofthe stocks rise. Stock owners can sell their shares for aprofit, or hold on to the stock for even more gain in thefuture. Sometimes companies will issue dividends -- part of theprofits that are distributed to share holders.
Stock Exchanges
Stocks are traded on stock exchanges. Most stocks are bought andsold through brokers who charge a commission or fee for thisservice. United States stock exchanges include the New YorkStock Exchange (NYSE), the American Stock Exchange, and theNational Association of Securities Dealers Automated QuotationSystem (NASDAQ). Most stocks are listed only on 1 exchange.
Long-Term Trading Vs. Day Trading
Stocks were traditionally seen as long-term investments.So-called "blue chip" stocks, those having proven value overmany years, often formed the basis of an investment portfolio.
Short-term trading is a relatively new phenomenon in stocktrading, made possible by the advent of the internet. Daytraders attempt to take advantage of large daily fluctuations inthe market by buying and selling many times in a single tradingday. This is relatively risky, and any profits are reduced bythe broker commissions charged on each transaction.
FOREX
The Foreign Exchange Market (FOREX) is quite different from thestock exchange. FOREX is primarily a short-term market. Mosttraders enter and exit deals within a 24 hour period --sometimes within a few minutes. Many FOREX trades can be made in1 day without building up a large brokerage fee, because FOREXtrades are commission-free. Brokers earn money by setting aspread -- the difference between asking and selling prices.
The FOREX is the largest financial market in the world, withtransactions worth $1.5 trillion every day. By comparison, allthe American stock exchanges combined handle about $100 billion.The huge volume of FOREX allows it to be 1 of the most liquidmarkets in the world. There is always a buyer and seller for anytype of currency, because the world economy relies on themovement of goods from country to country. The stock market isless liquid because participants may choose to hold theirinvestments indefinitely or move on to other markets.
Non-Stop Trading 5 Days A Week
The FOREX is not based in any 1 location. Trading markets arelocated worldwide and, due to time zone differences, trades canbe made 24 hours a day, 5 days a week. Trading begins in Sydney,Australia on Monday morning (Sunday afternoon New York time) andcontinues non-stop until Friday afternoon New York time. Stockexchanges have more limited trading hours. While it is possibleto trade on exchanges worldwide, each exchange is independentand operates for just 7 hours a day. It is not possible to buyor sell a certain stock that is traded only on 1 stock exchangewhen that exchange is closed.
Other FOREX Advantages
It is more predictable than stocks; it follows well-establishedtrends.
It allows high leverage -- typically 100:1 as opposed to 2:1 onthe stock market
It doesn't require a large investment -- mini accounts as smallas $250 can get you started in FOREX.
FOREX trading is not without risk. Neither is the stock market.Either trading vehicle requires education, planning, discipline,and some disposable income.
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