How does the Forex market differ from other markets?
The difference may appear to be great between the forex market and other markets, say the equity market. But this is not to suggest that they are similar. Not many experienced traders have dared to cross the boundaries of their trusted market domains unless they have made sufficient preparations and studied the new market.
The forex market has unique characteristics, despite similarities. Before we discuss the similarities, let’s see how the forex market differs from the stock market. So here are the differences.
The Forex market is a 24-hour trading market and is not country-specific.
Major markets open in Tokyo, and when it closes, London takes over, and then the New York market goes live until the next day when the Tokyo market opens again.
This seamless continuity isn’t available in the case of stock trading.
The above point also characterizes the concept of single exchange trading as nullified, and what takes its position is over-the-counter trading.
The equity market is the market of countless equities that are governed by several technical and microeconomic parameters and indices, which are all absent in the forex market.
The 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. There are no commissions to be paid to the brokers since you are directly dealing in currency and not securities or bonds, which are negotiable instruments and thus have the weakness to fluctuate sharply. Currencies can depreciate over long periods but can never be zero; this is a highly unthinkable scenario in the 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, to facilitate a walkover across the markets. Let us take a look at the similarities now.
- The long-term trading strategies are the same, as both require strong fundamental analyses of the stock or the currency pair in question.
- The concepts of settlements and rollovers are similar.
- Technical trading parameters are the same.
It makes sense for anyone wishing to cross markets to gain deeper insights.
