The difference in trade between equities and currencies

The difference in trade between equities and currencies is in the fundamental economic conditions. A stock represents a share of a company while a currency pair in principle reflects the strength of two or economies currency areas against each other.

What is fundamental to be expected in equities and currencies?

If a company is healthy and outputs to finance its growth stocks, they should be valuable in increasing shareholder value. Conversely, they fall with decreasing value of the company, and there are basically no limits.

In 1998, the share of Apple cost about $ 3.80 and rose until November 2012, about $ 700. Who in Apple invested 100 US dollars in 1998, in 2012 had a stock market wealth of about 18,400 US dollars. Of course, there plus500 are plenty of reverse cases: Who was boarded example, in the summer of 2012 in Apple at a price of around 600 dollars, complained in January 2013. a loss of about 27 percent. The stock currently falls dramatically, which had been expected after the death of Steve Jobs.

Apple chart

Apple share price since 1998 (IPO)

In foreign exchange, at least for the major pairs, is a development unthinkable , at least there are no fluctuations of several thousand percent. That would mean that an economy and its currency virtually worthless against another economy (although in some plagued by unrest developing countries already) what in the developed countries does not happen. Major currencies such as EUR / USD, EUR / GBP, USD / JPY, EUR / CHF and so on swing against each other in huge sliding zone, the euro against the US dollar from 0.85 (2002) to 1.60 (2008).

What does this mean for the practical trade?

In principle, an investor who believes in the business model of a company, buy this stock and for life hold (buy and hold).

So goes as Warren Buffet already his life before: he analyzes stocks and their companies very closely and buys those values that he believes that the substance of good, the stock is undervalued but. His credo is that etoro he basically not really remember to sell a stock again, which of course he still takes to realize profits within its funds.

When speculation on the development of two currencies against each other, however, is always to be assumed that, although developing trends over months and years that these trends – following the laws of the swing – but must come to an end.


The performance of the EUR against the USD.

The end may be provisionally identified on the highs and lows of the previous swings, even on shorter time frames. Who is the euro against the dollar via a derivative, can a ten-year period seen from a high of 1.60 and a low of 0.85 out, in between everything is possible. Who an on now selects up to three-year period, based between 1.20 to 1.50 (the swing since 2009), in a three- to six-month period is to start from around 1.25 to 1.35, with the euro in late January 2013 tapers to 1.35 and this mark either crack or returns back down in the resulting short-term swing.

Other differences in the practical trade

Just who is interested in short-term transactions, must also consider the practical trade that stocks on certain exchanges at certain times to be traded, while the foreign exchange market between Sunday midnight and Friday is not sleeping 24:00 .

Actually, investors may just as well in Germany trade American stocks, but there is this limitations, such as the exchange fees, so preferably alone from such technical reasons, but also because of the closeness of many large and small investors with the domestic industry is bought on the doorstep. But the information situation is with local shares much better, because over Siemens and Commerzbank reports our evening news, but have you heard recently something of the China Construction Bank with its impressive performance of 30 percent since September 2012?

In currencies such considerations rarely play a role, and that they should not. It escaped the Trader so valuable opportunities, because who has been staring for example, in recent years on the EUR / USD could not do much with it, both currency areas were battered by economic turmoil, the fluctuations between the two currencies fall accordingly uncontrolled way.

In contrast, the US dollar has put down against the Japanese yen since October, 2012, a beautiful performance of over 15 percent, the chart looks like painted, and if you had then bought a Openend knockout at the price of around 1.00 euros, then would you be happy about a price of around 13.00 euros now. So 1,300 euro would have been 100 euros, and you would have to follow suit to stop every two to three days, always the last day low. How do you ask? Whether that have made some people? – Naturally. These have then only lost money elsewhere.

Long story short: In currencies traders need to look outside the box and be guided primarily more technical chart. For while a company can be perfectly analyzed the economies in developed makes little sense. The euro, for example, has fallen despite the euro crisis not through the floor, but he swings between 1.20 to 1.50 during the whole of crisis.

Conclusion: What did we learn about stocks and forex?

Forex trading works on completely different principles such as stock trading. Knowledge of technical analysis, you can also use as any other technical analysis methods. Fundamentals but to look differently and other sources will be used. Forex is a separate issue, what one has to master just like trading stocks, you want to be successful.

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