Comparison of the forex market and stock market
As in any field of science , work and trade in the financial markets can be carried out by different methods . And, as in any science , these different methods has its supporters and opponents. Let’s look at what are the types of financial markets. There are 4 types of financial markets. This is a market that sells gold – the precious metals market , the various commodity markets and the stock market , that is, the stock market , and the much-acclaimed FX market – the Forex market . All of these structures in terms of their operation can not be considered separately from one another. Their work , as the elements of the world economy, is always connected in some way , events in one market can influence and actively influence the course of the rest of the markets, and this effect can be transmitted through the chain . In this chapter, we shall mention only the relations of the securities market and the Forex market , as well as their advantages and disadvantages for the participants.
In previous articles we have already studied the foreign exchange market fundamentals . Let’s look at what the stock market is interesting . The subject of trade in this market, as we know, are securities – the so -called ” equity instruments “.
Security – is evidence of a partial ownership of capital , entitling the holder to receive a portion of the profits from the income of private property owners (companies , corporations, government). When we purchase a security (stock instrument) , we participate in the profits of a project or capital – the interest which covers our acquisition of the security of its value . For these securities , or property rights , it is possible to obtain material share of the capital or of the project at their ( market) presentation .
Types of securities :
Derivatives – futures , options , warrants
Deposit and savings certificates
For each form of these documents can say a few single words .
The main type of securities are shares , they give the holder the right to ownership of part of the shares of profit, which receives for its activities corporation. In fact, this is the proportion of the company’s capital . Shares may be bearer , that is, they can cash out any person on a specific individual – nominal.
Also distinguish between ordinary and preference shares. At the general meeting of the Company ‘s ordinary shares give you the right to vote. Dividends that you receive will depend on the result of the Company for the year . In the case of preferred shares , you receive a pre-determined percentage of the profit of the organization , but you ‘ll have the right to vote at the meeting . Share entitles its holder as part of the ownership of the company’s capital , and the right to a percentage of its profits .
Comparison of the forex market and stock market
Now let’s talk about bonds . Bonds are debt securities. Issuer (the one who issues the bonds ) of this bond confirms that the bond holder has some means of his enterprise. And confirms the fact that the owner of the bond has the right to receive certain percentage of the company’s profit in some agreed manner . Profit from bonds usually calculated as a fixed annual percentage of the face value of the bond or release. Bonds are issued by both corporate and government . Less profitable , but more secure government bonds. And accordingly the opposite properties of different corporate bonds . Here, as in other business models , there is a direct relationship of risk and return .
The stock market has similar derivative financial instruments , as well as Forex market . Derivatives of the Forex market we saw in the previous chapters. Now, let’s turn to the derivatives of the stock market .
Derivative Securities :
Warrant – defines the right and the duty of the owner on the types of transactions in shares – the sale , exchange, subject to certain conditions .
Futures – a standard contract for the purchase or sale of a certain number of shares in the future. Stock futures feature is that it secures to your right and obligation to buy shares in the future at a price that it specifies . To ensure compliance with such a difficult deal the two sides make a security deposit on the stock exchange, where the transaction is made .
Option – does not oblige you , as the owner of the option, no action to purchase or sell , but merely allows them to do – only by your will . Therefore, the option seller is risk that the transaction does not take place. American-style call option gives you the right to buy and sell for a specific period, and European – upon its expiry . For the risk that the seller has the option, the buyer pays him personally pledge, which is called ” premium ” and losing it if , in the end, refuses the deal . Sold as a guarantee fulfillment of the terms of the transaction for its part, is making a pledge to the stock exchange , as is the case with futures . As a result of the disposition of the subject of options trading is itself the sum of ” prizes “.
The next type of securities – are certificates that are written testimonies of the bank about your contributions . Your contribution , according to these documents , gives you the right to receive that amount as well as a certain percentage – after a certain period of time. Legal entities that make a money turnover of joint- issued certificates of deposit . If an individual lends money stock company and participate in its profits , it is a savings certificate.
Another type of agreement the investor now – this bill . Bill represents time and the amount at which the instrument was discharged . And you can on presentation of a bill, after a specified period , to require the Issuer that amount. Are 2 types of bills , simple and transferable ( draft) . A promissory note is a certified elementary promise to return the issued amount . A bill of exchange , or ” bill ” – a document that prescribes himself to his creditor to the debtor. The debtor either accepts accepts it – and pay the agreed amount , or appeal the bill .
Now , having understood the essence of tools of the trade in the stock market , let us consider the features of trading mechanism . The first and most simple difference of the stock market from the foreign exchange market – a restriction on the place of the auction: those may be only one of the world’s major stock exchanges. In total there are several major stock exchanges , they are located in the major financial centers of the world . In these exchanges , of course , are different quotes and different values of various parameters. Now, before the usual order of the interaction of stock exchanges has been changed due to the acceleration of telecommunications . Arbitrage transactions , such as buying on one exchange and selling on the other hand, are kept to a minimum, as market participants on different exchanges were able to instantly communicate .
As for arbitrage : they are completely impossible to Forex – on the grounds that the foreign exchange market has no specific work centers , it has “various points” , that is, he is one.
Next, let’s talk about the features of the securities market. The stock market and work on it , require that the seller and the buyer have found each other. The liquidity of the stock market transactions on the shares is much lower than the currency , because the number of participants is limited. If you are working with stocks , you just simply can not find a buyer , and incur losses if the shares fall in price . Speculation on the stock market are profitable only when working on improving the course. To be a winner , be sure to buy cheap and sell expensive. You can sell only those papers that you actually have . The only exception to this rule is the natural wake fictitious sale of securities with a commitment to reverse the operation. If the stock market you are a private trader , the stock brokers can provide you with that opportunity. In the area of margin trading and do not expect anything from the stock market . Here you can purchase securities only on the money that you have available. The fact that the shares may be acquired and released not only for the purpose of speculation , it is necessary to remind , that the action is right on the capital of the organization to participate in the company’s dividends. It can be said that the shares are a tool of corporations. Their function is broader than profit or issue loans , they are often bought and not with a view to their subsequent resale. And in this case are meaningless concepts such as a closed or open position , if you look at the stock market in terms of concepts familiar from the Forex market . Just provide the leverage here is impossible.
In the stock market , there are certain hours of the start and end of the work . As a rule , it is working 8 hours for weekdays particular stock exchange . Let’s say that you are working on an exchange remotely via the Internet, from another time zone , it will no doubt bring you some inconvenience. For example, the hit -time exchange on the night in your area.
Further, for the securities will not be enough analytical tools that we use in the Forex market . And the fundamental analysis and technical, to predict changes in the stock price , you can apply , but here, the stock market has a wide variety of microeconomic factors affecting the life companies.
Purchase of shares – is the work with the company, learn about the system , the speakers , the history, development orders. And this knowledge is not always available – for foreign companies and all can be difficult to learn , sometimes there is only a professional press. Add to that the need to know at least the English language to explore most of the documents and information in the field.
However, the move of the drawbacks to the benefits of the stock exchange. There are tools in the securities market , some properties that distinguish it from the Forex market. For example , perspective, not only to receive dividends on the shares , which is not bad , and the ability to participate in the management of companies. Also of interest is the coupon payments on the bonds and the possibility of redemption of government securities. The risk of loss of investment in the stock market is partially reduced due to these interesting features .
So, in this chapter, we compared the two major financial markets – and the stock exchange . Revealed the advantages and disadvantages of the stock market to foreign exchange . Given to understand that the stock market under certain conditions , may be attractive to a private investor.