November 2, 2011
Trading Stocks Instead Of Forex: FTSE 100 Or AIM?
In my last post, I talked about how I was thinking my future lay in share trading rather than forex trading. Well after writing this post, I was kindly sent a guest post from Nicholas Pascal that discusses stock trading in some detail, and highlights the differences between trading FTSE 100 stocks and AIM stocks. I hope you find it useful.
I think it’s important to first point out that there isn’t much of a close correlation between market movements in stocks and forex. An artificial connection between the two has been forged since the early 1970s, which saw the end of the era of fixed exchange rates and brought with it a new breed of trader making connections between stock price and currency market behavior. Nevertheless, this makes it harder to apply an indicator.
On the other hand, there is more of a socio-economic link between forex and stocks . When there is a booming economy, the market is flooded with foreign investors buying stock, which brings with it a high volume of foreign currency which is good news for the market of that particular nation.
In this post, I want to discuss the pros and cons of trading stocks on the FTSE 100 Index versus the Alternative Investment Market (AIM).
FTSE 100: PROS & CONS
- Well established, successful corporates with stable projections and high burden of reporting requirements = generally lower investment risk.
- No minimum investment required.
- Offers good long-term growth.
- High volume of trading means that the index can easily move 100+ points in a day, which could result in high losses for spread betters with a small pool of trading funds.
- General risk exposure to lose more money than staked if spread betting.
AIM: PROS & CONS
- Suited to the experienced investor who is comfortable with a high risk / high returns strategy of investing in smaller businesses.
- Wide array of listed companies; AIM attracts a high number of diverse international corporates.
- Lower trading volume due to the majority of investors in AIM being institutional investors.
- 'Fast track' listing, less stringent regulatory and reporting requirements for companies = possibility for greater investment risk to non-institutional investors.
- Decreased transparency as to the financial health of companies listed gives a lesser indication of their true profitability.
Nicholas Pascal is the in-house copywriter with Everest Forex and has been trading currencies since he was a teenager. He has freelanced and been a consultant for a number of firms specializing in forex, and encourages the uninitiated to get involved in this democratic and empowering market.