Stocks or forex: should you bet on stocks or currencies?

Thanks to the websites of specialized brokers, trading on the foreign exchange market is as simple as buying or selling stocks on the stock exchange. Ultra-modern trading platforms allow you to place your orders on stocks, trackers, futures or Forex. Manual.

Let’s start by giving a good sweep to see more clearly. For several years, probably overly gullible French savers have been seduced by dodgy pharmacies promising them easy money on Forex.

Results: They were duped and the Financial Markets Authority (AMF) was forced to crack down. In France, several foreign websites have been banned which allegedly offer to invest in the foreign exchange market. Our first advice is therefore to invite you to read the practical guides of the MFA to protect your savings and avoid scams.

Stock Exchange or Forex? First of all, you need to understand what the Forex market is, the little name given to the international currency market. A diminutive that derives from the English Foreign Exchange. A huge market …

Hold on: in 2016 all the players involved in Forex traded an average of $ 5.1 trillion a day, of which $ 1.650 billion on the spot market, or in cash. A priori, this market is not made for small players. We meet central banks, large commercial banks, multinationals, hedge funds… but also, in recent years, brokers for private investors.

Open to individuals

Early Forex brokers, such as Cambiste.com in France in the 2000s, had the brilliant idea of ​​connecting individuals to Forex.

With the development of the Internet in the population and the increase in connection speeds, a simple computer connected to the web and equipped with a trading platform was enough to invest in the currency market. Provided, of course, that you have opened an account with an intermediary.

In just ten years, the technological environment, particularly allowing access to Forex, has greatly improved. Not only are the trading platforms much smoother, but they have also been adapted to smartphones and graphics tablets.

But what is a trading platform? Put simply, it is an interface accessible from a digital terminal (PC, Mac, Smartphone, tablet, etc.) which opens from an executable software, application or website. And which displays prices in real time, graphs , trading account status, news feed … and of course order windows.

What address ? If you type the word “Forex” into a search engine, you may end up a little off target. With any luck, you will come across this article that will allow you to avoid bad encounters.

Rule number one: choose a broker based in France. This intermediary must be authorized by the ACPR (Supervisory Supervisory and Resolution Authority) and by the AMF, the stock market supervisory body.

A “black” list of sites to avoid is published and regularly updated on the MFA website. Read it!

Choose a broker who also offers the stock market

Ideally, choose a broker who offers to invest both in the stock market on stocks or trackers but also on Forex. This allows you to move from one market to another depending on the volatility of the different assets.

In fact, it sometimes happens that investing in the stock market is rather boring when the price changes are too low. In this case, a round trip on the euro-dollar with a little leverage can get your adrenaline pumping.

The main generalist brokers that allow you to invest in the stock market in France, such as Bourse Direct or Boursorama, for example, also offer Forex. But you have to show your credentials.

Margin accounts, essential for trading Forex or CFDs (Contracts for Difference), are rarely highlighted in the service offerings of this broker category.

Trading currencies or leveraged stocks requires a good understanding of how the markets work and carries some risks that you need to know how to measure.

There are also specialized brokers such as Saxo Banque, FXCM or IG France, just to name three, which are always well positioned at the top of the annual rankings of the research firm Investment Trends.

We also need to mention margin accounts and leverage. To trade Forex directly in cash or via CFDs, you need to open a margin account.

You deposit a certain amount of money there which will serve as collateral with the broker. This sum is in fact deposited in a so-called “segregated” account, or in an account opened with a traditional banking institution such as BNP Paribas or LCL.

Lever

How does it work ? The broker will lend you the money you trade with, at an interest rate. This is why you can bet a much higher amount than the initial deposit you made. But you can also bet less, it doesn’t matter, he still lends you the money.

For example, if you initially deposit 10,000 euros into your account, you can bet 1 time, 2 times, 3 times, … 10 times more if you wish (which still makes 100,000 euros). You can also bet € 5,000 or less.

To try to explain the leverage effect, let’s take the example of a leverage of only 10. You initially have 10,000 euros in your trading account and decide to bet 10 times more on the euro-dollar currency pair, which is 100,000 euros.

Your market exposure is therefore $ 120,000 (with 1 euro equal to $ 1.20). Let’s imagine the euro rises to $ 1.22 and you have taken a long position on this currency pair. As a result, your market position rises to $ 122,000. You close the position and you earn $ 2,000, which is around € 1640. Not bad !

This profit already represents 16.4% of your initial bet while the euro has increased by just 1.7%.

As you can see, the problem with leverage is when you take the wrong direction.

Now imagine that instead of rising as we predicted, the euro suddenly plummets (another bad blow from Greece, Germany becomes ungovernable…) and ends up at 1.15 dollars. The position dropped to $ 115,000. Oops! The loss already amounts to $ 5,000.

If you try to maintain this position by telling yourself, as we all do, “sooner or later it will go up” (it often works on the stock markets after 10 years…) you might even light a candle in the nearest cathedral.

Your broker has already spotted you and is about to issue a margin call if you don’t let go as the euro continues to fall. And yes, your guarantee is only € 10,000 and your broker doesn’t want to appoint a bailiff to impound your flat screen TV and washing machine.

Exercise reserved for experienced and well-capitalized traders

Either put the money back into your account to meet your broker’s required margin level or cut your position.

In summary, before investing in Forex, learn how to use trading platforms and master the leverage effect.

So Stock Exchange or Forex? Main advantage of Forex over stocks: This market is much more liquid and, while it may not seem obvious, less volatile. It is not uncommon to see a stock undo more than 10% in one day while the euro-dollar pair fluctuates from 1 to 2% in a day when volatility is at its peak.

As we can see, investing in Forex is an exercise reserved for experienced and well-capitalized traders. It takes at least between 50,000 and 100,000 euros to start investing comfortably.

Small accounts are forced to use high leverage because volatility is low. So they take a lot more risks. And nervous tension is not a good currency trading advisor …

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