Forex Markets and Stock Markets

The foreign exchange market also known as the forex market is a market that facilitates the trading of two countries currencies. The forex market is over thirty years old, and was established in the early 1970's. The forex market is a market that's not grounded on any individual business or investing in any individual business, it is simply the trading of pairs of currencies.

The main difference between the international stock markets and the forex markets is the immense volume of trades that takes place on the forex market. 3.9 trillion dollars are traded every day on the forex market, almost 1.4 trillion dollars is traded every day on the London forex market alone. This volume of money is much greater than the money traded on the stock market of any country on a daily basis. The participants of the forex market are governments, banks, central banks, and other financial institutions in most countries of the world. Technology has shrunk the world and anyone with a computer or a telephone can trade in the forex market. In the last few years online forex online trading on various trading platforms has rocketed in popularity.

The instruments that are bought and sold on the forex markets are instruments that are easily liquidated and can be turned into cash very quickly, or as is often the case the profit or loss is cash anyway. The difference between the stock market and the forex market is that the forex market is a global market. The stock market is a market that is local to a country and its instruments are tied to something that occurs inside that country.

The stock market is based on businesses and products that are established in a country, whereas the forex market includes almost all and any country.

The stock market has set business hours. Normally, these hours are from 8am to 5pm. Stock markets are normally closed on the banking holidays and the weekends of the country they are situated in. The forex market on the other hand is open twenty four hours a day. Even if there is a bank holiday in your country you can still trade through another country. Of course weekends are the same everywhere. A large number of countries are involved in forex trading, and the purchasing and selling of currencies which are delivered and settled in many different times zones. When London is closing, New York is opening, when New York is closing, Tokyo is opening. There is always a trade being made at any time of day somewhere in the world.

The stock market in a country is going to trade stocks in that countries currency, the Japanese yen, in the Japanese stock market, or the United States dollar in the stock markets in the United States. Say you wanted to invest in Japanese stocks and you were in New York. You would have to sell dollars and buy Japanese yen on the forex market so that you could pay for the Japanese stock. So here we have someone investing in stock, having to trade in the forex market to be able to buy the yen to invest in the yen stock. In this case as in all cases it would be prudent for the investor to hedge the currency exposure because if when the investor decided to sell the yen stock the dollar had appreciated the investor would lose out on the exchange rate and maybe if the difference was big enough lose any profit made on the stock sale.

Whatever type of investment and international investor wishes to make, whether it be in stocks and shares, the money markets, commodities, currencies, futures, or options, at some point a transaction in the forex market will occur.