The Difference Between Stocks, Futures And Forex

The difference between stocks, futures and forex

Actions

They are title deeds issued by limited liability companies giving rise to different rights, such as receive a dividend or attend general meetings. The shares have emerged in the 19th century with the rise of capitalism.

Currently, the principle is the same at the time, it is to get a capital gain on the rise of a security purchased. However, since the onset of action, methods of speculation have changed little. Even if you can still buy shares in cash, there is the SRD (Deferred Settlement Service)which  allows investors to play the declines of certain values, or to enjoy a leverage of up to 5.

It is not necessarily obvious to trade stocks, is a product that can be quite restrictive. Indeed as we have said before, the maximum leverage is 5, it is fairly negligible compared to those offered on the Forex. Furthermore transaction costs are fixed, but are fairly large (2 £ for the lowest) and can be added as guards of human brokers.

Market share, particularly for positions taken by making use of leverage, it is obvious that the market involves a sum greater than that present on the account. Therefore a debit account is not improbable. This possibility is even greater than the gaps can be observed in large sizes from one session to another.

In terms of the size of the accounts, brokers typically require a minimum balance of 500 to £1000.

Futures

Although futures contracts appear to be more complex products as stocks, they are not so old either. Indeed their creation date as the 19th century, used by farmers in ancient times to guard against price fluctuations, they are now part of most financial products processed.

In order to best illustrate the operation of this instrument, I think one example will be greatly desirable. Let’s go back a century BCE. I am a wealthy farmer and we approach the summer of 1910, when we reap our corn. After the harvest I will wish to sell at a good price and enjoy a good turnover, however, sales of wheat are held until October.The price of wheat seems rather high, I think it will fall by October, yet I would like to sell at the current price. One solution offered to me, I can sign a forward contract (= future contract) with another party. The contract states that I will deliver my wheat to date (October) at a fixed price (I want to sell at current prices). So if prices fall, I will have no fear.

While the explanation may sound simplistic but it illustrates the operation of a futures contract. Of course currently this type of financial products is mainly used to perform only speculation and that is discussed in this course.

These are highly liquid financial assets, as opposed to the actions they provide leverage variable but relatively large (up to 1:100 approaching currency contracts).

However, to address the future a considerable margin is required. Indeed according to the broker will be asked to € 2,000 € 7,000 in the account to endorse the purchase of a futures contract. Compared to the transaction costs are generally higher than those on equities, the order of 4 to € 12. However, for the purchase of one futures contract CAC40 (FCE), a variation of a point on the underlying correspond to a debit or a credit of € 10 into your account. In this way, even high transaction costs are quickly covered. The high liquidity of the market will offer spreads rather low in contrast to those seen on the shares.

Forex

The  forex trading market which is highly talked about is a market called the counter, that is, unlike futures and stocks, it is not centralized in scholarships. The transactions are therefore free to the buyer to the seller via intermediaries called brokers (brokers =) that allow everyone to freely exchange rates trader.

This market booming in recent years seen to pass close to 4,000 billion daily on its order books. Continually orienting to individuals, it is very interesting for them thanks to the many benefits it offers (having small, highly leveraged ,…).

It is a market much more accessible, and because everything can seem advantageous. According to forex  you can observe a leverage of up to 1:500, which means you can invest 500 times your account balance on a position. In addition, the huge and growing liquidity of this market offers investors excessively low spreads. It will also add transaction costs do not exist, because brokers are remunerated on the spread and not a fixed cost. Generally, forex trading platforms are equipped with systems to automatically cut positions when we reached a loss too great, this avoids having a debit balance. Compared to the minimum size of an account, this is very variable. Actually accounts for micro lots (1000 units of currency) you can start trading with € 10, while accounts of mini-lots (10,000 currency units) it is customary to place a minimum balance of 500 €,

Conclusion

As we have seen, there may be major differences between each of these markets. Each product targets a specific investor profile. Indeed, the trading action will instead be performed by persons not seeking to make dozens of trades per day, but for those wanting to become a swing trading over several days / weeks. Instead the future, often reserved for the work environment, moving towards sophisticated traders who have mastered all aspects of trading and financial markets. The forex will suit a wide variety of profiles, even if in fact is turning increasingly to the most novice (below € 100), it may also attract large investors to engage in large-scale strategies as the carry trade for example. In conclusion we will retain that everyone can find the product that best meets their trading plan.

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