Forex Vs Equities

Liquidity

The spot Forex market is a $1.9 trillion daily market, making it the largest and most liquid market in the world. This Forex market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. If you compare this to the $30 billion per day futures markets it becomes clear that the futures markets provide only limited liquidity. The market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.

Hedging

Hedging in Forex is much easier than other equity markets. In stocks, the simplest, but most expensive method is to buy a put option for the stock you own. (It's the most expensive because you are buying insurance not only against market risk but against the risk of the specific security as well.) You can buy a put option on the market (like an OEX put) which will cover general market declines. You can also hedge by selling financial futures (e.g. the S&P 500 futures). Selling covered calls on your stocks is another option. However, in this case, you won’t be completely covered.

You may also hedge in the equity markets by selling short the stock of a competitor to the company whose stock you hold. For example, if you like Microsoft and think they will outdo Oracle, then buy MSFT and short ORCL. No matter which way the market as a whole goes, the offsetting positions hedge away the market risk. You make money as long as you're right about the relative competitive positions of the two companies.

Hedging in Forex is a much simpler task. To demonstrate, let's take a trader who is long the GBP/USD on the first Thursday of the month. Because the trader is experienced, he or she is aware that the Non-Farm payroll is released the first Friday of each month. The trader's position is long term and he or she is worried that the market may move wildly. Because of the nature of Forex, there is no long bias to the market, meaning that a trader may open long and short positions just as easily. To hedge the position and eliminate the risk of the economic release, the trader simply needs to open as many short GBP/USD positions as they currently have long. The trader has hedged their position and limited risk immediately.

24-Hour Market Action

Unlike most futures exchanges, the Forex currency market is a seamless 24-hour market. At 2:15 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 PM the Tokyo market opens, followed by London at 2 AM, and finally New York at 8 AM. As a trader, this allows you to react to favorable or unfavorable news by trading immediately. If important data comes in from England or Japan while the U.S. futures market is closed, the next day's opening could be a wild ride. (Overnight markets in futures currency contracts exist, but they can only be thinly traded, they are not very liquid and are difficult for the average investor to access).

Zero Commissions

In the Forex currency market, you pay no commissions and no exchange fees. Because you deal directly with the market maker via a purely electronic online exchange, you eliminate both ticket costs and middleman brokerage fees. There is still a cost to initiating any trade, but that cost is reflected in the bid/ask spread that is also present in futures or equities trading. ForexCT.com offers tight, consistent spreads that remain the same at all times.

Execution Quality and Speed

The futures and equities market does not offer instant execution or price certainty. Even with electronic trading and limited guarantees of execution speed, the price for fills on market orders is far from certain. In the futures and equities market, the prices quoted by brokers often represent the last trade, not necessarily the price for which the contract will be filled. In contrast, when trading with ForexCT.com you get rapid execution and price certainty.