Forex Trading Vs Stock Investing
Many people wonder what is the difference between forex trading and stock investing. The stock market of Malaysia, known as Bursa Saham Malaysia, started way back in 1964. As such, Malaysians are very familiar with buying and selling on the share market.
In the recent years, the forex market (also known as foreign currency exchange or fx market) was introduced and made available to retail individuals. Actually, trading and investing can be done in both the share market as well as in the foreign exchange market .
Investors are people who study the fundamentals of the financial vehicle before purchase, and they usually hold it for a long period of time before selling it for a large percentage profit. Traders are people who study the technical movements of a particular financial vehicle, and trade on momentum to take advantage of the volatility of the price movements. Usually, they hold it for a very short period of time and lock in smaller percentage profits, and the trades are in higher frequency.
However, investing is usually associated with the stock market. Investors hold long positions (buy first, and then sell later), because short positions (selling without having ready stock in hand, and then buy back later to cover the short position) are strictly prohibited by the law in Malaysia. Traders in the stock market can only use long strategies, which means that they can only profit on an uptrend, and sit tight on a down trend. They lack the shorting strategies in the arsenal of their trading plans.
Therefore, savvy professional traders prefer trading in the forex market, where they have the benefit of long and short strategies, and are able to trade in both up trends as well as during down trends. They sell as soon as they have reached their target profits, and cut loss if the price strays too far off from their target. They repeat this strategy again and again with many trades, taking in profits faster than would a long term investor.