2Bull Forex Blog

If you’ve been successful trading stocks and now wish to try your hand in the Forex market, please read this article before you lose the shirt on your back. While it may be tempting to think that both markets are similar, in reality they are worlds apart.

I personally know a successful stock trader who had lost more than $150,000 in the Forex market before he admitted to himself that he didn’t know what he was doing. Don’t be like this person. In this article, I will discuss 2 of the main differences between the Forex and stock markets so you can adjust your trading patterns accordingly.

Difference 1: Trading hours

This might seem obvious to you, but you’d be surprised at the number of people who trade Forex at the wrong time of the day!

Sure, most people know that the Forex market is open 24 hours… but what they don’t know is that not every single one of those 24 hours is a favourable time to trade.

Generally, the best times to trade in the Forex market are times when liquidity is high. These are typically times during the U.S. and London market trading hours. All other trading time periods have relatively lower liquidity and can be a bad time to enter into trades.

Difference 2: Volatility

In the stock market, high volatility usually means that the price of a stock is either skyrocketing, or plunging down rapidly. Stock prices rarely fluctuate up and down in big swings.

In the Forex market however, high volatility usually means large up and down price swings. Now, I know how some people will say “but you can still profit from price swings, right?” While one can technically trade price swings, this involves a high level of expertise to accomplish. Unless you’re an expert trader or institutional trader, trading price swings is a highly risky activity. I always recommend trading with the trend instead.

Therefore, keep in mind that volatility in the stock and Forex markets often mean different things. Adjust your trades accordingly and you’ll see immediately see improvements in your trading results.

Many people who try their hand at Forex trading often have misconceptions about the currency market. In this article, I will reveal to you four of the most commonly misunderstood aspects of Forex trading, and what it means to retail traders like you and me.

1. There are no commission fees in Forex trading

This is technically true because most Forex brokers don’t take a cut from your winnings. Commissions are fees paid to brokers whenever anyone makes money, and it is usually a percentage of how much you win.

But while there are no such ‘commissions’ paid out to brokers, many people think that this means the brokers don’t charge them anything at all. Actually, the brokers DO charge you a certain fee - it’s just not based on a percentage of your winnings, that’s all.

Instead, most Forex borkers charge a transaction fee known as a ‘spread’. Essentially they charge you a small fixed amount whenever you buy a currency pair, based on the size of your trading lot. The spread usually costs you about 2-5 pips, depending on the currency pair you’re looking at. If you’re trading buying one standard lot of the EUR/USD currency pair for example, and the spread is 2 pips, the transaction fee is $20 (1 pip in the EUR/USD = $10).

So now you know that you’re being charged every time you make a trade. How will this affect your trading strategy? Scalpers should all be aware about the exact pip spread their brokers charge because they will enter into numerous trades in each trading day… a 1 pip spread difference can save them as much as $100 every day.

2. Anyone can make money at all times of the day

This is misunderstood aspect is mainly due to the fact the currency market operates 24 hours a day. When the market is open at all times, it’s natural to assume that there are people making money every single minute.

However, this is quite far from the truth. Why?

As you should know by now, there is only profit potential when the market is moving. One cannot make money trading in a flat market. You’ll either need an upward or downward market movement to make money.

And if you look at the trading charts, you’ll notice particular periods of each trading day when volatility is relatively low - these are typically the non-U.S. and non-London market trading times when the American and European institutional traders are not active (it’s after-office hours for them).

But that’s not to say that no one can make any money during periods of low volatility; it’s just that the period of time when the most money is made is during the U.S. and London market trading hours when volatility and liquidity is high.