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Many people wonder what is the difference between forex trading and stock investing. The stock market of Malaysia, known as Bursa Saham Malaysia, started way back in 1964. As such, Malaysians are very familiar with buying and selling on the share market.
In the recent years, the forex market (also known as foreign currency exchange or fx market) was introduced and made available to retail individuals. Actually, trading and investing can be done in both the share market as well as in the foreign exchange market .
Investors are people who study the fundamentals of the financial vehicle before purchase, and they usually hold it for a long period of time before selling it for a large percentage profit. Traders are people who study the technical movements of a particular financial vehicle, and trade on momentum to take advantage of the volatility of the price movements. Usually, they hold it for a very short period of time and lock in smaller percentage profits, and the trades are in higher frequency.
However, investing is usually associated with the stock market. Investors hold long positions (buy first, and then sell later), because short positions (selling without having ready stock in hand, and then buy back later to cover the short position) are strictly prohibited by the law in Malaysia. Traders in the stock market can only use long strategies, which means that they can only profit on an uptrend, and sit tight on a down trend. They lack the shorting strategies in the arsenal of their trading plans.
Therefore, savvy professional traders prefer trading in the forex market, where they have the benefit of long and short strategies, and are able to trade in both up trends as well as during down trends. They sell as soon as they have reached their target profits, and cut loss if the price strays too far off from their target. They repeat this strategy again and again with many trades, taking in profits faster than would a long term investor.
Alvin Lee is a master forex trader and coach living in Malaysia, who can help you get started in forex trading.
Forex trading has long been dominated by the U.S. Dollar, Euro, British Pound, Japanese Yen and other "major" global currencies. In fact, major currencies pairs are referred to as "majors." Now, however, many Forex traders are looking for opportunities in less commonly traded currencies, including the Malaysian Ringgitt, the Singaporean Dollar, and the Brazilian Real. These currencies now offer viable and profitable alternatives to the aforementioned major currencies.
Different currencies represent different levels of risk, of course. Singapore's government is renowned around the world for their excellent fiscal policies and large foreign exchange reserves. With a booming economy and well-educated workforce Singapore has enjoyed unprecedented success in recent years. As a result its currency is growing in value. It's worth cautioning, however, that Singapore is highly dependent on international trade and global downturns stand the potential to hit Singapore especially hard. For example, in the aftermath of the 2008 global financial crisis Singapore's economy contracted by over 1 percent, sending the value of the Singapore dollar down.
The Malaysian Ringgit has also been an attractive currency for Forex traders in recent years. Like Singapore, Malaysia has enjoyed tremendous growth over the last several decades. Malaysia is an export heavy country but also has a substantial domestic market that is able to absorb some of the turbulence of global markets. Compared to many of its neighbors, Malaysia is both politically and financially stable with government coffers funded by the nation's oil wealth. Given these conditions the Malaysian Ringgit is certainly worth a look.
The Brazilian Real has been a hot commodity in recent years. Since 2003 the Real nearly doubled in value against the U.S. dollar. Brazil has emerged as the economic powerhouse of Latin America and as the Brazilian economy is inwardly focused and not dependent on exports some investors view it as more resilient to global downturns. With so much uncertainty in global markets Brazil is growing more and more attractive. It should be cautioned, however, that Brazil's economy has slowed down in recent years and some analysts now view the Real as overvalued.
There are numerous other currencies worth considering, such as the Swiss Franc, New Zealand dollar, Indian Rupee, and South Korean Won. If you are looking to invest in any of these currencies it is important for you to study each individual country. What does their economy look like today? What will it look like next year? How about five years from now? How well managed are the country's financial policies? What are the debt levels like? These can be difficult questions to answer, but the more information you can find out the better the position you will be in to invest.
Investing in Forex can be fun, exciting, and educational. Make no mistake, however, there are risks involved with every investment and Forex is no different. Currencies rise and fall, that's how traders make their money. As with most investments, the riskier the currency the greater the potential reward. So following Forex markets and global conditions closely is a must for any savvy Forex trader. And by doing your homework you can minimize your risk and increase the likelihood of success.
Further, Forex markets are often more stable and predictable than stock markets, making Forex an emerging favorite among retirees and institutional investors alike. Forex markets are generally not influenced by one bad choice and usually Forex markets follow long-term global trends. If a manager at a company, however, makes a single bad bet stock prices can plummet. If you are looking to diversify your portfolio, Forex trading is a great place to start and emerging currencies might offer some of the best opportunities going forward.