Forex Trading Tutorial: Forex vs. Equities

Forex Trading Tutorial: Forex vs. Equities

For those of you who are new to Forex, this forex trading tutorial is going to wake you up and smell the coffee to trading Forex and leave Equities behind in the dust. We are going to tell you why Forex is better than Equities.

Earlier in our forex trading tutorial, we have briefly mentioned Equities. Now we are going to discuss this topic in more detail. There is quite a bit of overlap between techniques and tools that you would use to trade the two. The fundamentals however tend to be different as well as the brokers and services with which you will deal. Below is the comparison chart:

	Equities	Forex
Leverage	4:1		100:1, 200:1, 300:1, 400:1
Minimum Account Size	$25, 000		$10, 000
Number of Instruments	Thousands		7 major currency pairs
Trading Times	9:30 am – 4 pm		24 hours
Exchange/platform fees	$100 or more / month		Free
Pip spreads/commissions	$14 / trade		$10 - $40 (1-4 pip spreads)

Because of the high leverage in Forex (100:1, 200:1, 300:1, or 400:1) compared to 4:1 in equities, the gains are in the order of 10,000th of a dollar (fourth decimal places). Therefore you need to trade in lots of $10K (mini lot) or usually $100K (standard lot) for your profits to amount to something noteworthy. As mentioned in our earlier forex trading tutorial, leverage significantly increases your buying power but yet you could also lose big time. We warned you earlier in our forex trading tutorial.

Equities deal with ‘pattern day trading’ rules (PDT) defined by The SEC which says ‘a pattern day trader is a trader who executes 4 or more trades per week. Such traders are required to maintain an equity balance of at least $25,000 in a margin account while as little as $250 can be used to open a Forex trading account. An ideal Forex mini account is $10K. A standard account is $100K. We recommend you to play around with a demo account if you do not have the required $10K for the mini account.

Equities exchange on NASDAQ and NYSE which offers only a small number of tradeable stocks that are worth trading. Forex, on the other hand, has seven (7) major currency pairs (EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/CHF, USD/CAD, and USD/JPY). Hence, Forex has better number of instruments than Equities.

Trading on Forex is at your convenient time especially if you are earning extra money while you eat, sleep, and play. Compare this to the fact that you can only day-trade equities between 9:30 am and 4 pm.

Forex brokers offer better trading platforms than equity. What else is better than free? We are sure that you need to purchase an equity trading platform and with data feed and exchange fees, you could pay an upfront fee anywhere between $100 and $175 a month. Scottrade offers free platform but their functionality is very limited and the quality of their data feed is usually second-rated. In Forex, we have found a number of brokers who offer free high quality trading platforms with a high quality Forex data feed. Most Forex brokers let you open a free demo account to test-drive their platform and service.

There is no commission charge with Forex brokers, unlike Equities. In Forex you deal with the ‘pip spread’ (please refer to our earlier forex trading tutorial. Equities also have a spread which is directly the results of the market’s supply and demand. Forex spread is not only the result of market forces, but also compounded by additional charges coming from the brokers and is greater than the one offered by the market. So choosing a broker with tight pip spreads will save you abundance. Check out our sponsors alongside of our forex trading tutorial to see if the broker is right for you.

In conclusion Forex is the most practical choice and forex trading tutorial is where new beginners like you would start–learning about the Forex, paper trading, and eventually live-trading in your sleep.