One thing that everyone considering trading Forex is whether it’s the right choice. There are other options that you’ve heard a lot more about – especially if you have watched financial dramas. Ultimately, the question comes down to which is better – Forex or stocks?
This is a big debate, and both have their loyalists, but let’s try looking at the most important factors that will help you choose.
Location was once very relevant here. It used to be that verifiable stock could only be traded in particular centers – the New York Stock Exchange, the London Stock Exchange, the Tokyo Stock Exchange, to name a few. You had to be present, or trade by proxy through an agent. There were therefore limitations on the number of people able to get involved, as the trading floor could only fit so many.
Forex trading, on the other hand, was never bound to a particular area.
However, this is a moot point. Financial trading is mostly done through an electronic network, which allows anyone with internet access (read: any trader) to open a record with a dealer and access the market from home.
Margin and leverage
Stock and Forex brokers both offer accounts with small minimum deposits. However, what potential for movement can you get with those small deposits?
Stockbrokers generally offer 1:2 leverage – at the extreme. Forex broker, on the other hand, can offer 1:50 as a minimum! That means, if you invest $1,000 you have the potential to make $2,000 on the stock market and $50,000 on the Forex market.
However, high leverage can be a great disadvantage for beginner traders. It creates much more of a likelihood that they’ll wipe out their accounts in one bad trade. The high returns are attractive and can be extremely beneficial, but high leverage requires a lot of care and a lot of risk.
Another factor here is that Forex brokers charge much lower commissions than stockbrokers. This is obviously a big advantage for Forex.
Forex has the advantage here due to the potential for much higher flexibility and returns.
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Round the clock
Stock markets are open when the stock exchange is open. This equates to about 8 hours a day, 5 days a week, Forex markets are open 24 hours a day, 5 days a week. This is because, due to the extensive range of timezones, Forex is always trading.
Although there are particular times at which volatility is higher and trading is more worthwhile, Forex remains a lot more available than the stock exchange in terms of hours in the day.
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Variety and versatility
The stock exchange offers a huge variety of trading instruments. Every openly claimed organization has its stock available. This makes finding a trade a lot harder for a long-term fundamental trader unless s/he has a very specific interest.
Forex, on the other hand, is mostly used to trade the majors. The US dollar is included in 80% of operations. It’s far easier to follow the market when it is so highly impacted by one player.
Ease of trade
Stocks are more of an investment than a speculation tool. Once you have your hands on specific stocks, it can be difficult to offload them, especially if the price is falling.
Forex has a much higher liquidity. It’s always easy to buy and sell, as you’re trading one currency for another.
Stocks or Forex?
As we’ve seen, Forex is more versatile and profitable in terms of margins and leverage, availability, variety, and ease of trade. Stocks are a difficult option, making Forex the easiest market to get into, and the most likely one in which you’ll make a profit.
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4 thoughts on “Forex vs Stocks: Which is a Better Investment?”
for me Forex is the thing which I don’t understand so easily, we have to talk more about leverage, variety and versatility here.. where as for stocks it is equally confusing but for stocks most of the work is done by analysts and we have to cautious in picking what suits our risk profile..
Forex and stocks have completely different investment scenario.
Forex is not for investing, it is constant buy and sell scenario with aim to make interest on buy and sell price difference. Forex not have long investment scenario like shares. For example if you invest in some currency and after you sell her in 30 year you could earn nothing.
Stocks are investing vehicle if you invested in any large company 30 years ago like, CocaCola, Microsoft, GE, Sony you received nice portfolio growth over time and dividends. But Forex can give you same earning in just weak, but also brings high risks.
This is always a challenge for those of us that don’t have a lot of time to research our investments. That said, you laid it out quite well. The risk is something I have always been concerned with but with any investment, there is risk, right?
I have always wondered if it were just smarter to invest money in my own life and business instead of over analyzing the markets. Just a thought.
did you know that many investors get into forex trading and FAIL … Protect yourself and your assets.