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Main Differences between an Equity and Forex Trading System

Updated on 2012-09-10 by Patrick Fonce

Trading in the financial markets is not as complicated as is popularly perceived. There are different platforms for trading such the forex and equity market, also known as stock market. Today, we discuss the difference between the Equity and Forex Trading System and analyze their main differences.

The term Equity has different meanings. Basically, equity can be referred to as an amount that is void of any loans and is therefore an asset. Stocks are equities. On the other hand, forex is all about foreign exchange. Both the forex market and stock exchange have algorithm trading systems. These systems are basically the same and are used to analyze the market data and respective trends. The analysis they provide is what determines the trade an investor is going to make.

Equity Trading

Equity trading involves buying and selling of company shares, also known as stocks. In equity trading, there are various ways an investor can participate in the buying and selling of stocks.

This is generally done through agents known as stock brokers.

Equity trading takes place in the stock exchange. Individual buying is done when an individual performs the trades on his/her own. The owner of the trade bases his trading on his own analysis or using a trading system which directs the investor on which stocks to purchase and for how long. As an individual, you can choose to leave everything to your agent and have the agent buy and sell the stocks on your behalf. The agents who perform the trade earn a commission for their work. The agent is known as a stock broker. Stock brokers work in firms which perform trades for various clients.

Forex Trading System

Forex trading is different from equity trading. As opposed to investing in companies, forex trading is based on foreign currency trades.

Forex trading is based on buying currency pairs. Just like stock trading, forex trading can be facilitated by a broker. The broker can help you decide which currency to buy or sell based on his own analysis of the market. The individual investor may also choose to invest using his own analysis of the market trends and news.

A good way for individual traders to invest in the forex market would be by using a forex trading system. This strategy is based on algorithm. The forex system analyses how well a certain currency is doing and can perform a trade on your behalf.

Major differences between equity and Forex trading systems

Below are just some of the differences you will find between an equity and forex trading system:

•      Number of Tradable Instruments (much more for the stock market)
•      Trading Hours
•      Complexity
•      Fundamental Data

Even when using a trading system for either forex or stock trading, equities and Forex are very different. Forex trading is not limited to geographic locations and can be done from any part of the world. Trading in equities is however limited and trading is performed on a centralized location.

The trading hours are also different, forex is an open market and trading takes place 24/7 unlike equities which close at the end of the day. The forex system of trading is also less complex than equities since you only need to concentrate on a number of currencies as opposed to the many stocks available.

The differences between an equity and forex trading system lie on the way the individual market operates. Most traders base their investments on how familiar one is with the financial market and their preferences.

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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.