DAY TRADING AND SWING TRADING THE CURRENCY MARKET
Third Edition
Kathy Lien
The foreign exchange market has not always been a popular market to trade because
for manydecades,it was restricted to hedge funds,commodity trading advisers who
manage large amounts of capital, major corporations, and institutional investors
due to regulation, capital requirements, and technology. Yet it was the market
of choice for many of these large players because the risk was fully customizable.
Trader A could use a 50 times leverage, and Trader B could trade cash on cash.
When the market opened up to retail traders, many brokerage firms swept in to
provideleveragedtradingalongwithfreeinstantaneouse xecutionplatforms,charts,
and real-time news. This access to low-cost information helped foreign exchange
trading surge in popularity, increasing its attractiveness as an alternative asset class
to trade.
Many equity and futures traders also turned to currencies, adding the asset class
to their trading portfolios. Before you choose to do so, however, it is important to
understand some of the key differences between the forex and equity markets.
Characteristics of FX Markets
1. It is the largest market in the world with growing liquidity.
2. The market is open 24 hours, 5.5 days a week for trading.
3. Profits can be made in both bull and bear markets.
4. There are no trading curbs, and short selling is permitted without an uptick.
5. Instant executable trading platform minimizes slippage and errors.
6. Leverage can be extremely high, which can magnify profits as well as losses.
Characteristics of Equities Market
1. There is decent market liquidity,but that can depend on a stock’sdailyvolume.
2. The market is only available for trading 9:30am to 5pm NY Time, with limited
after-hours trading.
3. The existence of exchange fees results in higher costs and commissions.
4. There is an uptick rule to short stocks, which many day traders find frustrating.
5. The number of steps involved in completing a trade can increase slippage and
error.
Characteristics of Futures Markets
1. There is limited market liquidity depending on the month of contract trades.
2. The presence of exchange fees results in more costs and commissions.
3. Market hours for futures trading are much shorter than spot and are dependent
on the product traded;each product may have different open and closing hours,
and there is limited after-hours trading.
4. Futures leverage is higher than equities, but still only a fraction of the leverage
offered in FX.
5. There tends to be prolonged bear markets.
6. Pit trading structure increases error and slippage.
Third Edition
Kathy Lien
The foreign exchange market has not always been a popular market to trade because
for manydecades,it was restricted to hedge funds,commodity trading advisers who
manage large amounts of capital, major corporations, and institutional investors
due to regulation, capital requirements, and technology. Yet it was the market
of choice for many of these large players because the risk was fully customizable.
Trader A could use a 50 times leverage, and Trader B could trade cash on cash.
When the market opened up to retail traders, many brokerage firms swept in to
provideleveragedtradingalongwithfreeinstantaneouse xecutionplatforms,charts,
and real-time news. This access to low-cost information helped foreign exchange
trading surge in popularity, increasing its attractiveness as an alternative asset class
to trade.
Many equity and futures traders also turned to currencies, adding the asset class
to their trading portfolios. Before you choose to do so, however, it is important to
understand some of the key differences between the forex and equity markets.
Characteristics of FX Markets
1. It is the largest market in the world with growing liquidity.
2. The market is open 24 hours, 5.5 days a week for trading.
3. Profits can be made in both bull and bear markets.
4. There are no trading curbs, and short selling is permitted without an uptick.
5. Instant executable trading platform minimizes slippage and errors.
6. Leverage can be extremely high, which can magnify profits as well as losses.
Characteristics of Equities Market
1. There is decent market liquidity,but that can depend on a stock’sdailyvolume.
2. The market is only available for trading 9:30am to 5pm NY Time, with limited
after-hours trading.
3. The existence of exchange fees results in higher costs and commissions.
4. There is an uptick rule to short stocks, which many day traders find frustrating.
5. The number of steps involved in completing a trade can increase slippage and
error.
Characteristics of Futures Markets
1. There is limited market liquidity depending on the month of contract trades.
2. The presence of exchange fees results in more costs and commissions.
3. Market hours for futures trading are much shorter than spot and are dependent
on the product traded;each product may have different open and closing hours,
and there is limited after-hours trading.
4. Futures leverage is higher than equities, but still only a fraction of the leverage
offered in FX.
5. There tends to be prolonged bear markets.
6. Pit trading structure increases error and slippage.
(Share) Comparing the FX Market with Futures and Equities
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