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Why Currencies are Actually Easier to Buy Than Stocks

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Why Currencies are Actually Easier to Buy Than Stocks

Post by Sean on Wed Aug 06, 2008 10:26 am

Good Day Currency Traders!

It's no secret that most Americans feel more comfortable investing on the U.S. stock market than any other market. Roughly half of Americans own stocks, either through their retirement account or outright according to the U.S. Census Bureau.

Even foreigners are fairly comfortable investing on the NYSE or AMEX.

But what all those stock investors don't know is it's actually easier to successfully invest in currencies - particularly during difficult markets like these.


Far Fewer Currencies Out There Than Stocks

If you're looking for what stocks to buy, you have over 13,000 publicly traded stocks to choose from right now. That's a lot to weed through and it significantly drops your odds of choosing a winner. Even the best of stock pickers still don't always screen for the exact combination of things that you would look for in a stock.

However, in the currency world, there are only eight major currencies: U.S. dollar, Euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar and the New Zealand dollar. So this makes about seven major pairs when paired against the U.S. dollar.

If you're trading in the FX market, you could technically also pair these currencies with other currencies besides the U.S. dollar. But even then, you only have 15-30 pairs to choose from - compared to over 13,000 stocks.

In other words, you don't have to watch thousands of currency pairs, because the pairs are such "macro" instruments. Also, there are only so many major countries in the world with high (triple A) ratings.

This makes things simpler. All you have to do is pay attention to the most important data that comes out. The economic announcements for a country can easily be found on an economic calendar at [You must be registered and logged in to see this link.] or [You must be registered and logged in to see this link.]


More Trustworthy Data and Much Less of It

In "stock land" not only do you have to watch a ton of stocks, but you also have to look at many aspects of stocks. For example, once you have a stock to watch, you need to keep an eye on that stock's P/Es, Dividends, PEG ratio, market capitalizations, present earnings and the earnings projections from the company, etc.

And you've got to keep up with this on every company that you follow.

However, in currencies, you can look to either one of the economic calendars I mentioned above and find all the fundamental announcements that you need to successfully track your currency trades.

There won't be 50 announcements coming out "before and after the bell" like in stocks. No, on a typical trading day, you will get a few announcements for each major currency ...and only one to two of those announcements are usually important.

In fact, some days, there may be no important announcements. You don't even have to know a lot about currencies to understand which data is important. The sites I mentioned above will rank the latest data for you by using words like "high" meaning a potentially high impact announcement on currencies. Or, as on Forex Factory's site, certain pieces of data have a red hot sign next to them in the "Impact" column.

All you have to do is watch the trend in these important announcements. Is your selected currency (and its corresponding country) improving overall? Or is that currency missing the mark quite often? Once you know the "trend of the fundamentals" you will know the long-term trend of the currency.

Technical Analysis Works the Same -
if Not Better for Currencies

So that's for the fundamentalists out there. What about the technicians who love to look at charts?

Well, in that case, it's even easier. All of the same indicators (trend lines, moving averages, oscillators, etc.) that you use for stocks apply just the same to currencies. That's right. The same way you use them in stocks is the same way they work in currencies.

In fact, you will usually see that trends last longer in currencies than they do in many stocks. All currencies are tied to their underlying countries. And a whole country can't change direction on a dime like a company can. It can go from a string of earning's blowouts to missing analysts' estimates, as laws change, as the competition moves in on them, etc.

Currencies can carry higher leverage and more volatility, so you may have to use a wider stop than you are accustomed to, but the technical concepts are the same. There's nothing new to learn for you technicians out there.


Would You Rather Trust
a CEO or a Central Banker?

In stocks you just have to trust that the CEO, CFO, etc. is telling you the truth and that they aren't hiding any Enron-type accounting in their books.

In stocks there are also many "land mines" to try to steer clear of that are sometimes outside of your control like stock option back dating, CEOs/CFOs creating "shell companies" to hide debt, etc.

In stocks, analysts work for a brokerage house that tells them how to depict a company. You have a CEO or CFO who is biased towards his company, usually only tells you the best side of it and sometimes gives overly optimistic outlooks, etc.

You'll never hear a CEO say: "You should steer clear of my stock for the next year or two as we get back on track, cut expenses and reacquaint ourselves with what the consumer needs from us."

Now granted a central banker won't say that about his country's currency either. However he doesn't have to. You'll hear his views on unemployment, inflation, housing markets, etc. And even if central bankers don't say anything, they still act on their views by raising or lowering rates. This tells you what they're thinking (and where you should invest).

So you will find that the currency data is much more pure and not tainted like so much stock data out there. That's a huge thing for me in this market. How can you invest in something if you don't believe their data is correct? You can't.

And that is exactly why you will find the currency market to be so refreshing if you've stuck to stocks so far.

The most important thing is to get a good honest forexbroker with integrity.

Sean

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