There are several financial markets – stocks, bonds and fixed income, commodities, currencies, indices and (recently) crypto-currencies. However, it can be said with all certainty that the most popular amongst the lot are stock and currencies (forex) – alongside with crypto-currencies. The reason is not far-fetched; these markets present their participants with ample profit making opportunities, and it is a bit commonplace to see persons become wealthy from these markets. One question we however get asked frequently by beginner investors or newcomers to investing or the financial markets is – “Should I invest in stocks or trade the foreign exchange market?” And this dilemma is not limited to newbie investors alone. Experienced and veteran investors in the stock market also want to know if it is advisable for them to switch over, and if forex trading is even worth the while. There are reasons for this: One is uncertainty as per the risks associated with the Forex market. Another is the commonplace fear of missing out (colloquially referred to as “FOMO”) of the opportunities abounding in the Forex market.
Here, we will want to help you make your mind.
As an overview, the Forex market is markedly different from the stock market, as will be shown below. For starters, the factors that affect the performance of both markets pretty much differ. However if we are to put both side by side and weigh their advantages, the forex market seems to be the one with more benefits as proven below.
Advantages of forex over stocks
- Volume and Liquidity
The Forex market is the largest financial market the world over with a daily turnover of about $6 trillion. This clearly trumps the $200 billion turnover that stocks reportedly do globally. In fact, there is a study that places the ratio of liquidity of the forex market to the S&P 500 at 1,200:1. What this huge volume gives the forex market is liquidity as cannot be found in other markets. As a result, traders can easily execute trades without any issues. Anytime you enter trades, there is almost a certainty that there is a fellow market participant taking the other side of your trade. This means that if you enter a BUY trade, there is someone already on ground with a corresponding SELL trade; similarly, if you have a SELL order, there is someone ready with a BUY. The stock market cannot be said to afford traders this luxury.
Furthermore, the large turnover, coupled with leverage, exposes the trader to unlimited earning potential.
- Trading Hours
If you are a stock trader or investor, you have just 8 hours of a day to execute trades; it means you cannot enter trades after “market hours” even if trading opportunities arise. Although innovations by stakeholders have brought about after market hours trading, it is still plagued by greatly reduced volatility and liquidity, and is largely still an exclusive preserve of institutional investors.
However, the forex market is open 24 hours a day throughout the 5 working days of a week, save for national and international holidays. This unlimited trading time gives investors much flexibility to trade without altering their lifestyles.
- Ability to short markets
In the traditional stock market, investors can only make money when the stock price rallies. But it is a known fact that price does not always go up, it occasionally retracts, and in fact, during crisis periods, can fall badly. During these times, stock market participants experience heavy losses of capital. The ability to short (which means profiting from falling prices) is largely restricted in the stock market, and partly only available to institutional investors, albeit with heavy regulation.
However in the Forex market, traders have the utmost freedom to play the market both ways – during a rally and during bearish times.
- No Market Manipulation
The stock market by nature is much vulnerable to a number of manipulations, in which certain participants profit much more than other participants, due to their having access to some advantage that others do not.
On the other hand, the forex market is a much decentralized market with no single institution calling the shorts in the market. As such, manipulation is pretty difficult if not impossible. In addition, the Forex market is ultra-large and as such it is much difficult for any party to distort prices.
- Simplicity and Ability to narrow focus
On the New York Stock Exchange (NYSE), the world’s biggest stock exchange, there are at least 2,800 stocks listed. There are tens of other exchanges the world over, with several stocks listed on them. This presents the trader/investor with a dilemma as to which stock to follow – and with the fear of missing out on stocks not followed. On the other hand, although there are dozens of currencies globally, there are only about 7 major currency pairs and a few other minor pairs to follow and trade, with each presenting trading opportunities for traders. Apart from making trading relatively simple for the trader, this gives the forex trader the ample opportunity to focus on a few assets.
Some other minor advantages that must be noted include the fact the Forex market boasts of little or no commissions charged on trades compared to other markets, especially the stock market. However, relatively recent innovations have led to brokers charging ultra-low commissions on trades in the stock market, especially in the US.
However Note This
While it may seem like we are trying to over-glorify the Forex market and belittle the stock market, we should also note that the stock market boasts of some unique features. One of such is that it is heavily regulated, probably much more than the Forex market; although this over-regulation may somewhat hamper trader freedom. As such we can safely state that the conclusion of the Forex vs. Stocks debate will be down to individual choice, trader personality, risk appetite, and bias.
Nevertheless, the Forex market is an amazing market and boasts extraordinary opportunities that are not present in other markets. Ready to start milking these opportunities, then you need reliable forex signals that allow you earn regularly and grow your account, and those provided by 1000pip Builder are one of the most profitable you will come across.