From Robin Lofton,
Your Guide to Forex Trading.
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Forex versus Other Financial Markets

The Forex (or currency) market is one of four financial markets. These markets include the stock, bond, commodity, and currency markets. Each market has its own special characteristics that attract banks and financial institutions to trade its products. Individuals have only recently been permitted to trade in the currency markets. Previously, the Forex market was traded primarily by banks, large financial institutions, and governments. Individuals have been trading in the other financial markets for many years. Let’s take a look at a few basic characteristics of the other markets and their major differences with the Forex market.

The Stock Market

The stock market is a system that permits the buying and selling (or trading) of a company’s shares and derivatives. There are stock markets around the world. The worldwide stock market is valued at $51 trillion.

Key differences from the Forex Market

• The stock market has lower liquidity.
• The stock market has lower leverage and risk (2:1 vs. 100:1 in Forex).
• The stock market has more regulation, control, and remedies.

The Bond Market

The bond market is a loosely connected system in which buyers and sellers trade fixed income assets and securities. Bond and other fixed income assets are traded informally in the over-the-counter market. The worldwide bond market is valued at $45 trillion.

Key differences from Forex Market

• The bond market has the world’s largest investment sector.
• The bond market has lower volatility and risk.
• The bond market has limited trading hours.
• The bond market is a decentralized market without a common exchange.

The Commodities Market

The commodities market is an exchange where raw goods or products are traded. Like the stock market, there are commodities markets around the world. Commodities from apples to zinc are sold in commodities exchanges.

Key differences from Commodities Market

• The commodities market has lower leverage (10:1 vs. 100:1 in Forex).
• The commodities market has lower liquidity.
• The commodities market tends to have longer trends.
• The commodities market has limited trading hours.
• The commodities market has more errors and slippage (misquoted prices).

These four markets are operating simultaneously. Each has its own advantages and challenges. Many Forex traders will study how these markets work together, which is called Intermarket Analysis.