When you step into the trading world, then a major challenge for you is to decide whether you should indulge in Forex or stock trading. Here we analyse all the advantage of trading Forex compared to trading stocks.
Forex Trading the Preferred Choice Of The Traders Of Today
Now if you analyse the picture of the stock trading world, then an important thing to make a note of is that there are about 2,800 stocks that are listed on the New York Stock Exchange. Moreover, 3, 100 shares are listed on the NASDAQ as well. Now let us have a look at the Forex market as well. There are a huge number of currency pairs in the market. However, most of the traders prefer to trade in the four currency pairs. Apparently, it seems that it is much easier to keep an eye on the currency pairs rather than the huge number of stocks. Now this is just a first impression here. To get more details we will explore the comparison in detail.
Why Forex should be your preference over stock trading
Considering the Liquidity
First, you need to acknowledge the facts. The truth is that currency markets are huge in comparison to the equity market. The Forex trading volume is about 10 times larger than the value of the world’s stock market. This means that FX is of a more liquid nature. This is why the leverages are high in the FX market and the margins are small. You will not be able to find such small margins in the stock market by any means at all. When you are into stock trading, then you need to have half your investment value in the margin account. The situation is pretty different in case of FX trading. The FX traders only need to have 1% amount in their margin account.
Judging the Volatility
Now there is no doubt about the fact that the Forex market is far more volatile in comparison to the stock market. However, the point that goes in favour of the FX market is that the trends remain the same for a long time. This works quite well for all the aggressive traders out there.
A look into round the clock trading: Another edge that the FX market has in comparison to the stock market is round the clock trading facility. For example, let us assume that the price spikes up after hours, then if you are a short-term trader, then it will not be a problem for you to adjust your current position and enter a new area.
Discussing the commissions
When you are into stock trading, then an important issue that you have to deal with is high commission. A stock trader has two deal with two different kinds of fees or charges. You may have to pay a fee to the exchange. The stock brokers also charge the fee on the top of the spreads. The truth is that Forex trading costs are much lower in comparison to other markets. Moreover, the Forex brokers receive their payments through the bid/ask price.
The element of flexibility
When you are comparing Forex and stock trading, then you cannot ignore the element of flexibility as well. Now when you are trading in the FX market, then you have the freedom to go long or short. Now this does not seem to happen in case of the stocks. As a trader you always have the access to all possible opportunities in the FX market whether the market is rising or falling. However, when the stock markets get by lull, then this results in declined volumes and declined activity as well. This means that a trader will not have the freedom to open or close the position whenever he wants.
When the stock market experiences a decline, then it becomes quite difficult for the trader to make a profit in this situation.
FX Market is easy to follow
Now when you decide to trade in the FX market, then you have several choices among the currency pairs that you can follow. You keep receiving the news updates about the currency pairs and you make your choices accordingly. However, things are never this simple in the stock market. The truth is that as a trader you get flooded with information about thousands of stocks. Every stock belongs to a different sector. You might need to deal with various news related with the various sectors. Now this means that as a trader you need to do a lot of research if you are thinking on the lines of investing on the stocks.
It will not be easy for you to follow all the news updates about the different types of stocks. When you decide to trade in FX market, then the rule is pretty straightforward. Only the political and economic news for the currency pairs is necessary. This helps you remain focused as a trader.
The influence of the speculators
Interestingly, the influence of the speculator is much less in the FX market in comparison to the stock market. The speculator movement is closely followed in the stock market and it has a significant in this market because of less liquidity. However, the case is completely different in the FX market. Since Forex enjoys massive liquidity, this is why the followers of the individual analysts do not have much of an impact.
To get a clear idea of FX and stock market comparison have a look at the picture below.
If you are new to trading, then you should keep the discussed points into consideration when opting for Forex or stock trading. Moreover, you should also ensure that you have the necessary knowledge to excel in the specified market. Invest time in learning the tricks of the chosen market so that you do not have to suffer losses at the end of the day. The secret to trading success is proper planning and correct evaluation of skills. This way you are bound to reach new heights of success in trading.