For anyone who has made the decision to start financial trading, choosing a market to trade is the next dilemma to face. Most people will at some point ask themselves the question ‘should I trade stocks or Forex?’.
With most brokers now offering access to a wide range of different market, there are very few barriers to what you can actually trade. You can now trade on almost a limitless number of assets from around the globe.
Forex (foreign exchange) and the world stock markets are two most popular destinations for new investors who are looking to get started with trading.
Both markets are readily accessible from broker accounts and offer a wide selection of assets on which a strategy can be built. But which of these two markets is actually better for a new trader to cut their teeth on; currencies or stocks?
From our perspective the Forex markets offer a much greater potential and are easier to start trading. This is in spite of the volatility that is often associated with these markets.
The reason we take this view is that it is actually this volatility that helps to create the breath of trading opportunity in these markets. High volatility equals more opportunities to trade and this in turn offers greater opportunists from which to build profits.
Below we list of the differences between these two different financial markets and highlight some of the benefits that Forex offers the new trader.
1. Trade Around The Clock
One of the most obvious differences between these two markets is that with Forex you are able to trade around the clock. No matter where you are situated in the world you can start trading as the foreign exchange markets never sleep.
The Forex markets hours are split across four distinct trading sessions – European, US, Pacific and Asian. Each of these overlap and make for continuous open markets through the trading day. Exchange in currency and trading can take place at any point during these sessions, providing easy access to markets whenever you have a window to trade.
2. No Fees
Trading through a Forex broker is essentially commission free. You don’t have to pay a dealing fee to your broker when you open an order unlike when you invest in stocks. Instead you only pay a small spread on each deal. This is built into the quote and therefore is a small inbuilt part of any transaction that your broker executes for you.
This lack of a set dealing charge helps to ensure that if you are a frequent trader, you won’t end up with charges eating into your profits. This provides greater transparency for your trading. It also makes it simpler to calculate your profit and loss.
3. Liquid Markets
When trading in stocks it is possible to find yourself, ‘locked’ into share holdings or only able to accept poor pricing if liquidity in the markets is low. To get the best price for your asset when you come to sell, you want to be sure that there are plenty of buyers on the other side of the deal who are willing to give you a good price.
The Forex markets see trillions of dollars worth of transactions each day which helps to ensure that liquidity in the markets remains higher. This means that there will always be buyers and sellers in the market who are ready to back a deal. This helps to ensure tight spreads from your Forex broker and fluid trading conditions.
Unlike the universe of stocks, the world of Forex boils down to just four major pairs. These account for the majority of transactions that are made in the market. These ‘majors’ – EUR/USD, USD/JPY, GBP/USD and USD/CHF are well covered by chart analysis, making it relatively easy to keep up with the latest movements and trading ideas.
Contrast this with the world of stocks, where as a trader you may have to track several hundred companies in order to find a potential trading opportunity.
5. Fast Profits
Foreign exchange markets can move quickly which can lead to high profits if you know what you are doing. You don’t have to worry where a market will head over the upcoming days or weeks to make decent returns on your account. In fact you can focus on intraday movements and still earn substantial returns from your trading.
By earning profits at a fast rate you will be able to invest in new positions. This will let allow you to quickly compound your trading returns and ultimately your profits at a faster rate.
Currency trading offers a potentially lucrative way to make money. This is also true of trading stocks.
However for the reasons highlighted there are number of key advantages that Forex has over Stock trading. It allows you to trade around the clock at a time that is convenient to you, has low charges and provides a huge number of fast paced markets from which you can profit.
While this market has the ability to provide you with fast profits it is important to remember that this can be a double edged sword. You should always pay the Forex markets your utmost respect. Always aim to limit your risk and you will be in a position to both realise more importantly keep hold of your profits.