Zaner Group, LLC: Advantages of Forex vs. Stocks

You can profit in an up or down market.

Unlike the equity market, with forex there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising, or falling market. Remember, forex trading is speculative in nature and does involve risk of loss.

You pay only the bid/ask spread, zero commissions or fees*.

Most of Zaner Group's forex platforms charge zero commission or transaction fees* to trade spot currencies exchange online or over the phone. In the equity markets, you must pay both a commission and a spread. The over-the counter structure of the forex market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders are more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after hours trading.

You get up to 50 times the leverage… and potential risks and profits… of trading stocks

Trading forex with Zaner Group gives you up to 50 times the leverage of trading stocks. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The leverage is 2 to 1. But with forex, if you invest $1,000 margin on a foreign currency trade, you can control up to $100,000 in currencies. Of course, the advantage of increased leverage also carries increased risk.

You can make money on ordinary news items, like changes in interest rates

If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency market. Traditionally, if a country raises its interest rate, the currency of that country will strengthen in relation to other countries as investors shift assets to that country to gain a higher return. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Determining which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI, and GDP. Generally the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.

You can easily and quickly diversify out of U.S. dollars

The trade balance shows the net difference over a period of time between a nation's exports and imports. When a country imports more than it exports, the trade balance will show a deficit, which is generally considered unfavorable to that nation's currency. Many investors know that they should diversify some of their assets into foreign currencies, but to do so is difficult. Most U.S. banks, for example, do not offer foreign currency accounts. But by trading forex, you instantly control hundreds of thousands of dollars worth of foreign currencies. For every $1,000 margin deposit, you can control up to $100,000 worth of Euros… or British Pounds… or whatever currency you believe will rise in the future.

You can analyze countries like stocks

Currencies are traded in pairs so if a trader "buys" one currency he is simultaneously "selling" the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade is looked at the closest.

You can trade 24 hours a day

After-hours stock trading is not a very liquid or easy market to trade. But with forex, you can trade 24 hours a day -- in the largest, most liquid market in the world¹. That means you never have to "just say no" to trading.