Hong Kong is an important financial centre for both forex and stocks markets, which would naturally lead to a comparison between these two forms of investment trading. On one side, we have foreign currencies, and on the other, we have equities representing companies of different sectors within Hong Kong and abroad.
What is the Hang Seng Index?
Hong Kong is a unique administrative region of China established in 1841 after the Opium Wars. Although it has been under the British administration for over 150 years, it is still considered a part of China and self-governance with its own laws and regulations.
It had been an important centre of trade since colonial times, but it did not become a stock market until 1980 when Hang Seng Indexes Company Limited launched the Hang Seng Index on June 23rd 1980. The index consists of around 50 companies that are traded on the exchange.
Trading forex vs stocks in Hong Kong
Hong Kong has a highly developed financial market consisting of both forex and stock traders.
Forex trading is done through margin accounts, which allow you to borrow money from your broker to open more prominent positions. This type of borrowing can compound quickly, resulting in significant profit or loss at the end of the day when the market moves against your leverage position.
There are only two variables in Forex trading, the direction of your trade and how much you are willing to risk on your investment/trade. There are technically an infinite number of strategies that traders may use when attempting to profit from forex markets. Still, these can be divided into three broad categories: speculation, hedging and arbitrage. The speculation involves taking certain positions based upon anticipated future price movements.
Hedging means taking actions for the trader to reduce losses or protect profits that have already been made elsewhere with other assets. Arbitrage consists of making investments across different exchanges for traders to take advantage of minor market inefficiencies and purchase and sell currencies at different rates allowing them to benefit from “risk-free” or guaranteed returns.
On the other hand, stocks are traded on margin in some cases. It depends on whether you are using an online brokerage that allows you to trade on margin or not, but this doesn’t apply if you use a full-service broker that provides advice in making investments rather than allowing clients to trade their accounts.
With stocks, it’s possible to utilize endless strategies for investment. It doesn’t matter whether you are a long-term or short-term investor, dividend aristocrat or growth stock picker – if your goals can be accurately achieved by investing in a particular industry, sector, region or company, then the ability for multiple strategies is directly correlated with potential returns that you may stand to gain from investments inequities.
Consider your risk
One of the most important aspects to consider when making investments is how much risk you take with each trade or investment. With equities, it’s possible to buy low and sell high, but the opposite also applies. If you invest when prices are high, you can expect to incur losses, whereas if you’re willing to be patient, then there may be opportunities for profits in the future.
Forex market values are determined entirely by emotions such as fear, greed, or optimism can all play a part in this ever-changing marketplace which is why foreign exchange dealers typically have different rules depending upon what type of trader they are catering to. Like casino games where percentages favour house regardless of player skill level, currencies have an expected loss and break-even points that allow dealers to ensure that they’ll always leave the market with a profit.
Having an experienced online broker from Saxo Hong Kong to give you advice and guidance is essential when dealing with equities. Not only do they know the ins and outs of each industry, but they can also help you make informed investment decisions based on your needs and goals as an investor.