Forex Alternatives
- The Forex market lacks one key ingredient that is standard in nearly all other markets. Because the Forex market is decentralized and there is no single entity that routes all the trades, you cannot find information on the actual trading volume that occurs throughout the day. This means you can see prices rise and fall on a price chart, but you do not get to see how much currency is changing hands during these fluctuations. Volume analysis is an important tool when making trading decisions, and for this reason many traders turn to the currency futures. Most major currency futures trade through the Chicago Mercantile Exchange, or CME, making this a centralized market that offers volume data. The prices of the currency futures correspond to Forex, as they both follow currency exchange rates. And both markets are highly leveraged so the percentage returns are similar. You simply need a futures broker instead of a Forex broker, but some brokers provide both services.
- A key factor differentiates the stock market from many other markets. The Financial Industry Regulatory Authority (FINRA) restricts day trading in stocks to those accounts with at least $25,000 in equity. However many traders do not have accounts of this size but still wish to day trade. For this reason, they engage the Forex market, which has no such restrictions. However, you can choose from other alternatives if you want to day trade with a small account. In addition to currency futures, the entire arena of index futures is an option. Hundreds of billions of dollars change hands every day in the S&P 500 index futures market alone. This market tracks the S&P 500 stock market index and thus lets you day trade the activity on the stock market but without the restrictions by FINRA.
- If you meet the FINRA minimum balance requirement and wish to day trade with high leverage, consider the stock options market. Stock options track individual stocks but react with much greater percentage returns than the stocks themselves. A typical stock may rise by 1 percent or less on a given day, but some of the stock options for that stock can rise by 20 times this percentage return, if not more. Stock options are publicly available for nearly anyone to trade, but they are complex and require some careful studying before trading. Nonetheless, they are a volatile market that may serve as an exciting alternative to Forex trading.
- All these markets provide exceptionally high risks. It is possible to quickly lose large portions of your brokerage balance in a single trade. With any market, use a simulation account until you understand how it behaves. Only until you have success with your strategy in a safe simulation environment should you commit real funds to that market.