Forex and Stock Trading: Which is Better?
Forex and stock trading are two ventures new investors often stumble upon when they make their dive into the markets. For the unacquainted, these two markets appear just the same. But for those who are serious about investing, the two markets offer distinct pros and cons.
In this article, we’ll set out to answer a nagging question for beginners:
Forex market vs stock market—which is better?
How to Compare?
There really isn’t any solid answer set in stone. In fact, there are many ways to approach this problem. But in the end, it all boils down to how each market fit your trading personality.
It’s not a matter of fact. It’s a matter of opinion. So, the first thing you need to ask yourself as an investor is this:
What kind of investor am I?
Then, we can start comparing these two markets. Forex and stock trading both need you to be clear what your preferences and needs are.
Size and Volume
First off, we can take a look at how these markets compare when it comes to size and trading volume.
The forex market is practically the biggest financial market in the world. Every day, trading volume and transactions reach around $5 trillion. Compare that to the stock market, which trades roughly $200 billion every day on average.
Simply put, you can trade in a high-volume market much easily. The prices are closer to what amount you want. It’s worth noting, however, that price gaps and slippage still happen even in the forex market.
With the talk of volume always comes the discussion of liquidity. Liquidity is very important in forex and stock trading.
In general, liquidity means the ease and speed at which you can monetize your asset. Say, for example, you have an asset that you want to convert into cash. Liquidity becomes an issue if it proves difficult to find a buyer for that asset.
In the markets, high liquidity is crucial. It tells you have fast you can find a market maker for your trade.
Forex market pairs are highly liquid. Pairs usually have low spreads and transaction costs. For the stock market, blue-chip companies tend to have the highest liquidity. Traders often use e-minis (futures) in order to trade stock exchanges.
Trading strategies are abundant, but different strategies do not apply to the same asset.
For instance, the buy-and-hold strategy doesn’t really agree with traders who want to gather quick profits. It’s mainly for stock traders and investors who want to wait huge price appreciations in the long term.
So, there’s day trading, which is a strategy that makes use of forex trading signals to quickly open and close a trade.
Online forex trading companies tout day trading as the most common way to perform trading. But forex and stock trading both make use of day trading.
Generally, though, top online trading platforms favor the forex market for flexibility of strategies. In the forex market, you can easily implement short-term, rapid-fire speed trading styles.
Stock Market: Selection of Assets
This one’s pretty easy to see. Both forex and stock trading allow you to choose from a variety of assets to trade.
However, in the forex market, you usually only have to trade the major pairs. There are only 8 major pairs in forex trading.
In the stock market, there are thousands of public companies you can choose from. When you do stock trading, you have to keep an eye on the company itself, the industry/sector it belongs to, and its location’s economy.
If you prefer a market with a much narrower focus but with high liquidity, you can choose forex trading. But if you prefer a more diversified portfolio, it’s a good idea to try stocks.
Apart from those things, it’s also wise to consider the market hours. The forex market trades 24 hours a day, partly because the interbank market is in charge. It doesn’t trade on a central exchange. The stock markets, on the other hand, trade at different times through the major indices around the world.
Commissions are also of importance. Most online forex trading companies charge little to no commissions at all. They may charge for some other services, like forex signals. On the other hand, stock traders usually need to pay the spread long with the commission to the broker.
Forex and stock trading are two different beasts. Overall, the choice depends on how much you think you can understand and tame these beasts. The key is to trade with ease, comfort, and as much confidence as you can.
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