The fact is: when it comes to tradable financial instruments, you have a wide range of options from which to pick. There are stocks, bonds, commodities, Forex, and even the controversial Contracts for Difference (CFDs). Besides, there are thousands of individual examples of them to trade, too. Even though each of them has benefits and peculiarities, since it is impossible to trade all, you might want to ask: which one should I trade?
Of those asset classes, you should note that stocks and Forex are the most popular. There is almost no one who does not have holdings of shares. If you have not created a portfolio of stocks yourself, chances are that your employer has done so for you, as part of employee retirement plans. Forex also has been gaining more admirers — all thanks to its perceived lucrativeness.
Therefore, it will be better to compare the two instead. So, between stocks and Forex, which one should you trade? Which one is better? In this article, you will find the answer.
- Fewer Products. Less Analysis.
There are many reasons why you should prefer Forex over stocks. The fact that the former has fewer products available to trade could be one of them. There are less than two hundred currency pairs. For stocks, on the other hand, the number is not that small. The New York Stock Exchange (NYSE), the largest stock market in the world, has at least 2,000 stocks listed on it. Nasdaq, another world’s foremost exchange, has over 3,000.
Compare that to Forex and you will agree that stock traders have so much analysis to do. As a Forex trader, you can decide to limit yourself to just two or four currency pairs. Only those can become the mainstay of your trading, thereby further removing the burden of unnecessary analysis off your neck.
- 24-Hour Market.
The Forex market is open 24 hours every day, and at least 6 days a week. It is on from Sunday afternoon and closes on Friday afternoon! Therefore, from the U.S. to Asia and Europe, the market is always on, thereby making room for people from different parts of the world to participate in it.
As a result, too, the profit-making opportunities it provides are extensive. It does not matter what your schedule is, you can always get to trade Forex at will.
- Lower Barriers.
It is impossible to start trading stocks with as little as $10. Although there is no officially stipulated minimum amount to invest in stocks, you will need at least $500 before you can buy the shares of any of the publicly-traded companies. Now add to that also the brokerage fees and commissions that you will have to pay per trade.
For Forex, the barriers to entry are not that high. In fact, it is now becoming common to see many Forex brokers requiring just as little as $10 to open an account with them. Consequently, Forex has lower entry barriers compared to stocks
- Instant Order Execution.
The Forex market also prides itself on one more advantage: orders are instantaneously executed in it. Why? Because in the Forex market, money never dries up! This phenomenon is known as liquidity which describes the ease with which Forex traders can buy and sell currency pairs without causing too drastic changes in their exchange rates.
In Forex, prices are live-streamed, market quotes are made available in real-time, and slippage, a situation whereby brokers fill clients’ orders at prices different from those they enter, hardly exists
Forex traders also enjoy another advantage over their counterpart stock traders: leverage! When you trade Forex, you have access to far greater leverage than you will by trading stocks. If your broker offers you leverage of, say, 1:400 on your trades, that means that you can start controlling positions that are 400 times larger than the size of your trading capital!
Therefore, with just $1,000 in your trading account with your broker as margin, you can control trades up to $400,000 in size
- Ease of Transactions
The tug of war between Forex and stocks is not over yet. Of notable importance is the fact that Forex transactions are much easier compared to their stock counterparts. As a Forex trader, if you think a particular currency will gain relative to another, you buy it and simultaneously sell the other. Do you think it will lose? You sell it and simultaneously buy the other instead.
For stock trading, it is not that easy. Do you think the stock of a particular company will fall? Great, you can short its shares. Essentially, this is an arrangement whereby you will borrow the shares from your broker when the price is high and sell them, wait for the price to fall, and buy back the borrowed shares when the price reaches your calculated lower price. The process is complicated.
Hence, evidently, the ease of Forex transactions makes it possible for Forex traders to profit easily from both falling and rising market situations. However, that is hard, though not impossible, to do in the stock market.
There you have it, the reasons you should prefer trading Forex to trading stocks. However, trading, in general, can be wild. Sometimes, the market does not seem to have a definite direction. In such cases, most traders take wrong trades and have their capital wiped.
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