By Hana Lee
Stocks have been a popular investment for hundreds of years.
Companies issue stocks to raise capital for expansion and new
projects, and each share of the stock represents a partial
ownership in the company.
When the company does well and makes a profit, the value of
stocks rise. Stock owners can sell their shares for a profit
hold on to the stock for even more gain in the future.
Sometimes companies will issue dividends – part of the profits
that are distributed to share holders.
Stocks are traded on stock exchanges. Most stocks are bought
and sold through brokers who charge a commission or fee for
this service. American stock exchanges include the New York
Stock Exchange (NYSE) and the National Association of
Securities Dealers Automated Quotation System (NASDAQ). Most
stocks are only listed on one exchange, although large
companies may have listings on several exchanges.
Stocks were traditionally seen as long term investments. So
called 'blue chip' stocks - those having proven value over
years - may form the backbone of an investment portfolio.
term trading is a relatively new phenomenon made possible with
the advent of Internet trading. Day traders attempt to take
advantage of large daily fluctuations in the market by buying
and selling many times in one trading period. It is relatively
risky and any profits realized are reduced by broker
commissions charged on each transaction.
Stocks may sometimes be bought on margin, meaning that the
investor borrows money to buy the stocks. Margin rates are
usually around 50% - the investor can borrow as much as half
the value of the stock.
The Foreign Exchange Market (FOREX) is quite different from
stock exchange. In contrast to the stock exchange, the FOREX
primarily a short term market. Most traders enter and exit
deals within a 24 hour period – sometimes within a few
Many FOREX trades can be made in one day without building up a
large brokerage fee because FOREX trades are commission free.
Brokers earn money by setting a spread – the difference
asking and selling prices.
The FOREX is the largest financial market in the world. It is
handles transactions worth $1.5 trillion every day. By
comparison, all the American stock exchanges combined handle
daily transactions worth about $100 billion. The huge volume
FOREX means that it is one of the most liquid markets in the
world. There is always a buyer and seller for any type of
currency because the world economy relies on the movement of
goods from country to country. The stock market is less liquid
because participants may choose to hold their investments or
move on to other markets.
The FOREX is not located in any one location. Trading markets
are located world-wide and because of difference in time-zones
trades can be made 24 hours a day, 5 days a week. Trading
begins in Sydney, Australia on Monday morning (Sunday
New York time) and continues non-stop until Friday afternoon
Stock exchanges have more limited trading hours. While it is
possible to trade on exchanges world-wide, each exchange is
independent and operates for just 7 hours a day. There is no
way to buy or sell a certain stock that is only traded on one
stock exchange when that exchange is closed.
Other advantages of FOREX? It is more predictable than stocks.
It follows well established trends; it allows high leverage –
typically 100:1 instead of 2:1 on the stock market; and it
doesn't require a large investment – mini accounts as small as
$250 can get you started in FOREX.
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