The difference between foreign exchange and stocks

The difference between foreign exchange and stocks

As far as the current international market is concerned, more and more investors are now abandoning the stock market to choose foreign exchange trading, which has a lot to do with the nature of investment. The flexibility of foreign exchange trading makes investors full of curiosity about this market. Speaking of this, many people especially want to know the difference between foreign exchange and stocks. Next, let me explain it for you.
First of all, let me introduce to you what foreign exchange is.
Foreign exchange: referred to as Forex/FX, foreign exchange refers to various payment methods expressed in foreign currencies that can be used for international settlement. In layman's terms, they are foreign currencies such as the British pound, the US dollar, the euro, the Japanese yen, the Canadian dollar, the Australian dollar, and the Hong Kong dollar.
1. What is foreign exchange investment
In layman's terms, open a foreign exchange account like stocks. In the account, just like buying and selling stocks, buying and selling foreign exchange rates is a foreign exchange transaction.
For example, today's exchange rate is 1 U.S. dollar = 6.1000 renminbi; tomorrow's exchange rate is 1 U.S. dollar=6.1200 renminbi; if you buy 1 lot of U.S. dollars, you will make a profit = (6.1200-6.1000) * 100,000 U.S. dollars = 2000 U.S. dollars
(1 hand is the transaction volume representing the transaction volume of 100,000 U.S. dollars)
If you buy the U.S. dollar and fall, you will lose. Therefore, buying and selling foreign exchange is to predict the rise and fall of the exchange rate, and then make a transaction.
2. Why choose foreign exchange
The foreign exchange market can be said to be the "cleanest" speculative market in the world: investors don't have to worry about the performance of each stock, and they don't have to worry about insider trading between long and short futures. The huge daily trading volume makes no institution have the courage to sit on the bank. Up to now, the trading volume of the foreign exchange market has reached 6 trillion US dollars per day. Soros and Buffett can understand the information that ordinary investors can understand. Investors and speculators all over the world are watching at the same time. The same quotes and price graphs, dozens of online trading platforms and thousands of market makers connect tens of millions of investors and speculators around the world. The most important thing is: whether you can make money is determined by your own ability.

  1. The development status of the foreign exchange industry
    Foreign exchange transactions are huge for international market opportunities and development potential. Because the world economy has accumulated huge wealth after 30 years of rapid development, the excess surplus value created by laborers will inevitably be transferred to reserves in large quantities; secondly, because the transfer is transferred to reserves There are few investment opportunities to achieve value preservation and appreciation of wealth. Everyone has experienced the reality of negative interest rates, stocks diving, and futures losing their money. Real estate has to be questioned if it is used as an investment hedging tool. Take the United States as an example. The Federal Reserve is actively releasing water to save the market. However, the liquidity released by loose monetary policy did not increase the wealth of the middle class. The bigwigs are making a lot of money easily by relying on equity assets. In the face of inflation, how to protect assets from being eroded and how to combat inflation has become a common problem faced by global investors and investment institutions. Those speculation stocks. People with gold and other commodity futures have little chance to make a fortune, just as people who bet that house prices will never fall will end up paying a heavy price.

  2. Prospects of the foreign exchange industry
    As an international trading market, the foreign exchange market is the largest financial market in the world. There are transactions in the foreign exchange market almost 24 hours a day, and the transaction volume is huge. It is estimated that there are about 6 trillion US dollars per day, with a maximum of 10 trillion US dollars, which is 6 times the total of the global stock market and the global futures market. 18 times. Now many senior investors have given up stocks and invested in the foreign exchange market,

In the mature overseas investment market, 30% of each household's investment allocation is foreign exchange investment. As the process of foreign exchange internationalization continues to accelerate, both retail and corporate foreign exchange demand in the foreign exchange market will experience rapid development, and the world will face the advent of the foreign exchange era!
Foreign exchange trading and stock trading are two very important investment methods in today's investment market. Among them, the stock exchange market I think everyone should be familiar with it. After dinner, everyone can always hear that all kinds of gods are violent (xue) night (ben) violent (wu) rich (gui) because of their investment in the stock market. Compared with stock trading, investment in the foreign exchange market may not be so familiar to everyone. In this issue, there will be a preliminary duel between the two transactions, making everyone's investment methods more diversified and controllable. Let's talk about the differences and advantages of foreign exchange trading and stock trading:

(1) 24-hour non-stop trading
The foreign exchange market is a 24-hour uninterrupted market. At 4:00 a.m. Beijing time on Monday, foreign exchange trading begins in Wellington, Oceania, and then starts from Tokyo, Japan at 8:00, and then continues trading at 17:30 in the afternoon from London, England. At 21:30 in the last night, it will be closed by New York, USA. No matter when and where any news happens, investors can react immediately, and they can also make flexible plans for the time of entry or exit; in contrast, stock trading only has 4 hours a day, and liquidity is low. It is impossible to think of it when it encounters a limit.
(2) Low transaction costs
The over-the-counter transaction structure of the foreign exchange market eliminates most of the transaction costs and settlement costs, thus reducing transaction expenses. High-efficiency electronic trading system allows investors to directly trade with brokers, eliminating many bills and intermediary fees, and further reducing transaction costs. Nowadays, the average spread for every 1 lot traded (USD 100,000) is around 4 points (except domestic banks), which is roughly USD 40, which is equal to four ten thousandths of the transaction fee, and only one price difference is charged for one transaction. However, international banks often It collects transaction commissions instead of spreads, so its transaction costs are lower; for transactions in the stock market, you must pay transaction commissions, stamp duties, transfer fees, etc., which add up to more than five thousandths, and as of April 2008, the transaction Commissions and stamp duties are still charged on a bilateral basis, and the cost of buying and selling a stock is as high as 1%.
(3) High volume
Spot foreign exchange trading is the most common method of foreign exchange trading, accounting for 1/3 of the entire foreign exchange trading volume. In 2007, the total daily turnover of global spot foreign exchange trading exceeded US$100 billion, compared with the world's largest securities trading. In terms of the daily trading volume of 120 billion U.S. dollars on the New York Stock Exchange, it is about ten times more. High trading volume is conducive to the rapid in and out of large funds, it is also conducive to the rapid deployment of assets and the flexible handling of positions; while the trading volume of the domestic stock market makes it difficult for large funds to flow in and out freely, and it is also unable to attract the participation of international heavyweight funds.
(4) Provide high leverage
For foreign exchange trading in the foreign exchange market, domestic banks can provide 10 to 30 times leverage, Hong Kong brokers can provide 20 times leverage, and foreign brokers can provide 100 to 500 leverage; while the domestic stock market has no leverage at all , Investors can only trade with limited funds, and cannot make small gains.
(5) Both bear market and bull market have profit opportunities
In the foreign exchange market, whether in a bear market or a bull market period, both the buyer and the seller have the same profit opportunities. The stock market is usually regarded as a buyer's market, because under the specific role of the relevant legal structure and financing, the market does not encourage shorting operations. However, because the way of buying and selling foreign exchange involves both buying and selling, there is no structural problem of buying first or selling first. In other words, regardless of whether the market moves up or down, for foreign exchange investors, the opportunity to make a profit is equal; and the stock market can only buy up and not down because of the fact that investors only have half the time to trade. , That is, to trade in a bull market and continue to wait in a bear market.
(6) Can satisfy technology investors
Currency trends will generally show a more obvious development trend, which is very beneficial to technical traders. Since more than 80% of foreign exchange transactions are speculative in nature, the market usually surpasses and adjusts itself. Traders who have studied technical analysis can easily identify new trends and breakthroughs, thus providing a number of different market entry and exit opportunities; and in the stock market, even if there is a good technology, once the down limit appears one after another, come up with it. It is almost impossible, and once a long bear market enters, even brokerage firms will inevitably go bankrupt.

(7) High market transparency
Market transparency refers to the difficulty for investors to obtain market information in transactions. The current foreign exchange market attaches great importance to transparency. Many policies, news, news, data and other information are open and transparent, and any investor can collect and view it online. This is very beneficial for traders to make trend judgments. In the stock market, it is not perfect. The market environment and immature market mentality often make it difficult to predict market trends, and non-market risks are high.
(8) The risk of the trading partner is low
Currency trading is a pair of pairs, which means that when investors "buy" one currency, they are also "selling" another currency. Buying and selling these currencies is buying and selling the national economy behind these currencies. The operation of a country is generally more stable than that of a single company, which means that it is easier for investors to predict the direction of economic development. In addition, the exchange rate of a country cannot rise indefinitely, because its corresponding currency will fall infinitely, and the currency that falls infinitely does not exist unless the currency withdraws from the stage of history; and for stocks, due to illegal connected transactions between listed companies, Factors such as fraud in information disclosure, malicious manipulation by dealers, etc., lead to high transaction risks.
(9) Easy to choose trading varieties
The currency portfolio in the foreign exchange market is limited, allowing investors to concentrate on a few common currency combinations and quickly grasp their pulse; while there are thousands of stocks in the stock market, stock selection will be a difficult task .
(10) Other differences
The trading system of the foreign exchange market is the T+0 system, which can be bought and sold at any time without being "stuck"; while the trading system of the stock market is the T+1 system, which can be bought on the same day but cannot be sold on the same day, which is prone to overnight risk.
The volatility of various currencies in the foreign exchange market is often around 1%. If you can obtain leverage of more than 100 times, the theoretical daily income can exceed 100%; while the stock market's increase is within 10% or 5% every day, and there is a daily limit. There is a risk of not knowing when you will come out if you go in today.

Speaking of this, why so many people give up stocks and invest in the foreign exchange market one after another!
I run my own clothing brand and have many years of experience in foreign exchange investment. Of course, so many years of experience are inseparable from the support of friends from investment banks in London, New York, Tokyo, and Hong Kong.
I really like chatting with outstanding investors here, so that you can make progress.
Hope to get to know more investment friends here! ! !

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (1)

Most Helpful
Aug 20, 2021 - 7:44pm

Repellat quidem facere quo quis numquam velit. Aut et eius laboriosam qui neque reprehenderit. Est sequi aperiam enim quo eos. Ipsum exercitationem earum nihil voluptatem perspiciatis rem. Quos sit aliquam voluptatibus voluptas aut tenetur cum.

Aut quis est modi ullam eos enim atque. Id vel porro non enim. Possimus molestiae culpa nemo magnam est.

Start Discussion

Total Avg Compensation

September 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (38) $367
  • Associates (218) $232
  • 2nd Year Analyst (132) $153
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (102) $144
  • 1st Year Analyst (483) $135
  • Intern/Summer Analyst (375) $82