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    Forex Vs Equities


    The Forex market is a $4 trillion daily market, making it the largest and most liquid market in the world. Forex market can absorb trading volume and transaction sizes that dwarf the capacity of any other market. The New York Stock Exchange generated an average of $82.43 billion daily trading volume in 2008. If you compare this to the Forex market, it becomes clear that the equities markets provide only limited liquidity. The Forex market is always liquid, meaning positions can be liquidated and stop-loss orders execute generally without slippage.


    Hedging in Forex is much easier than equities markets. In securities, 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 overall market (like an OEX put) which will cover general market declines. You can also hedge by selling futures contracts (e.g. the S&P 500 futures contract traded on the Chicago Mercantile Exchange). Selling covered calls on your stocks is another alternative. However, in this case, you won’t be completely covered.

    You may also hedge in the equities markets by selling short the stock of a competitor to the company whose stock you hold. For example, if you hold Microsoft and think they will outperform Oracle, then continue to hold Microsoft and short Oracle. 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 or short positions just as easily. To hedge the position and eliminate the risk of impact the economic release data may have on the market, 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 the risk immediately.

    24-Hour Market Action

    Unlike most markets, the Forex 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 trader to access).

    Zero Commissions

    In the Forex currency market, you generally pay no commissions and no exchange fees. In the case of ForexCT, you deal directly with the market maker. This eliminates 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. ForexCT offers tight, consistent spreads that generally remain the same at all times.

    Execution Quality and Speed

    The futures and equities markets do 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 markets, 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 you get rapid execution and price certainty provided you accept the quotation provided immediately. Obviously, all quotations are subject to change as the prices in underlying market change.