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 look 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 centres – 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 amount 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.
Now 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?
Stock brokers 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 stock brokers. 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 organisation has their 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.