Trading Options Vs Forex
Before going into whether to trade options or forex, it is important to understand what the two are and why one should be chosen over the other. Foreign Exchange trading, popularly known as Forex or FX trading, refers to the exchange of one currency for another to make a profit. It is the largest market in the world with a global daily average turnover of over 5 trillion USD. The basic thing done here is a person speculating that one currency becomes stronger with respect to another, and investing on it. If the person is right, they make a profit. Options trading is buying or selling large amounts of stock expecting that the price of the stock may rise or fall in the near future. There are several differences between options and forex trading that make it suitable for investment for different types of people. Trading Time Since most of Options trading takes place at stock exchanges, stock is usually only sold and bought during working hours i.e. 9am to 5 pm. However, currency exchange can take place 24 hours a day, 5 days a week. This is because there is no centralized exchange for forex trading and therefore is traded over the counter. Liquidity Of The Market Forex enjoys the highest liquidity of any market, even more than options. With a global daily turnover of 5 trillion there is hardly any market that can be compared to it. This ensures higher speed and higher speed implies greater profit. Trade Execution In forex, the trade execution is rapid and immediate. There is hardly any delay as there is with Options and in addition, it gets filled at the best possible price unlike options, or for that matter, any market at all. The order will most certainly not slip like it does with options and even if it does, it can be dealt with easily because of the high liquidity of the market. Brokerage Arguably, the safest way to trade options is via a broker/broker firm. However, this means that the trader must make enough to pay the commission and make profits. However the concept of a broker is non existent for Forex trading because it is interbank exchanging and therefore does not have any middlemen. The disadvantage however is that the trader might be more vulnerable to fraud and counterparty default, because they do not have a regulator like a broker or firm cross referencing a buyer or seller. Height of Risk Position limits are one of the greatest advantages to a forex trader because it tells the trader when the margin amount is greater than the account value that the trader holds. There is hardly any other market with a safety feature such as this.