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Take a quick tour of Interbankgroup.com's features and learn how
Interbankgroup.com
can help you trade with success.
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Forex vs. Equities
If you are interested in trading currencies online, you
will find that the Forex market offers several advantages
over equities trading.
24-Hour Trading
Forex is a true 24-hour market, which offers a major advantage
over equities trading. Whether it's 6pm or 6am, somewhere
in the world there are always buyers and sellers actively
trading foreign currencies. Traders can always respond
to breaking news immediately, and P&L is not affected
by after hours earning reports or analyst conference calls.
After hours trading for U.S. equities brings with it several
limitations. ECN's (Electronic Communication Networks),
also called matching systems, exist to bring together
buyers and sellers - when possible. However, there is
no guarantee that every trade will be executed, nor at
a fair market price. Quite frequently, traders must wait
until the market opens the following day in order to receive
a tighter spread.
Superior Liquidity
With a daily trading volume that is 50x larger than the
New York Stock Exchange, there are always broker/dealers
willing to buy or sell currencies in the FX markets. The
liquidity of this market, especially that of the major
currencies, helps ensure price stability. Traders can
almost always open or close a position at a fair market
price.
Because of the lower trade volume, investors in the stock
market are more vulnerable to liquidity risk, which results
in a wider dealing spread or larger price movements in
response to any relatively large transaction.
100:1 Leverage
100:1 leverage is commonly available from online FX dealers,
which substantially exceeds the common 2:1 margin offered
by equity brokers. At 100:1, traders post $1000 margin
for a $100,000 position, or 1%.
While certainly not for everyone, the substantial leverage
available from online currency trading firms is a powerful,
moneymaking tool. Rather than merely loading up on risk
as many people incorrectly assume, leverage is essential
in the Forex market. This is because the average daily
percentage move of a major currency is less than 1%, whereas
a stock can easily have a 10% price move on any given
day.
The most effective way to manage the risk associated with
margined trading is to diligently follow a disciplined
trading style that consistently utilizes stop and limit
orders. Devise and adhere to a system where your controls
kick in when emotion might otherwise take over.
Lower Transaction Costs
It is much more cost-efficient to trade Forex in terms
of both commissions and transaction fees. InterBank Group
charges NO commissions or fees whatsoever, while still
offering traders access to all relevant market information
and trading tools. In contrast, commissions for stock
trades range from $7.95-$29.95 per trade with online discount
brokers up to $100 or more per trade with full service
brokers.
Another important point to consider is the width of the
bid/ask spread. Regardless of deal size, forex dealing
spreads are normally 5 pips or less (a pip is .0005 US
cents). In general, the width of the spread in a forex
transaction is less than 1/10 that of a stock transaction,
which could include a .125 (1/8) wide spread.
Profit Potential In Both Rising And Falling Markets
In every open FX position, an investor is long in one
currency and short the other. A short position is one
in which the trader sells a currency in anticipation that
it will depreciate. This means that potential exists in
a rising as well as a falling market.
The ability to sell currencies without any limitations
is another distinct advantage over equity trading. In
the US equity markets, it is much more difficult to establish
a short position due to the Zero Uptick rule, which prevents
investors from shorting a stock unless the immediately
preceding trade was equal to or lower than the price of
the short sale. |
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| Unfamiliar with forex trading? Visit InterBank
Group's Learning Center
for a wealth of information about the forex market. |
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Basics
Great if you're new to the foreign exchange
market. |
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Pro
A look at sophisticated forex trading strategies and
methods. |
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