Every trader knows that the basic rule of risk management is diversification. The modern market offers multiple trading instruments for all kinds of needs, and it’s important you learn about all of them to find exactly what you need.
Forex and stocks get compared all the time, but what do they really have in common? What’s the difference? Let’s take a closer look - who knows, maybe you will find a new trading passion after reading this article.
1. Let’s speak volumes
The Forex market is estimated to trade around $5 trillion a day. This impressive number makes the stock market’s daily volume seem insignificant - just $200 billion per day.
But why does the volume matter? Bigger trading volumes mean that your orders will be executed faster and more easily, allowing you to enter the market at the price you want. That inevitably leads us to the next point.
2. Liquidity: what’s so special?
Liquidity secures lower spreads and lower transaction costs, which is, without any doubt, works to the trader’s advantage.
Not all stocks are easily bought or sold. Suppose you prefer to trade something like stocks of Amazon, Google, Pfizer, or Apple. In that case, liquidity will allow a smooth transaction, but finding buyers or sellers for something less popular might be difficult.
However, if you prefer day-trading, then high-liquidity stocks are an obvious choice. Finding your perfect asset might take some time, but remember to filter them by trading volume.
3. Trading ‘round the clock
On of Forex benefits is, undoubtedly, its availability 24/5. Trading sessions worldwide overlap and change one another, so any hour of the business week, you can find a currency pair to trade (or at least to monitor closely). Unfortunately, the same thing doesn’t apply to stocks trading.
Stocks are closely tied to the exchange they are listed on and have their designated time of trading. However, some exchanges provide extended hours - that’s when you can trade stocks and shares during breaking news, even when the market is closed.
4. It’s all about the commissions
Most Forex brokers don’t have any commission when it comes to trading currency pairs. Instead, they use their own margin on the spread. When it comes to stocks and futures contract, traders pay both the spread and a commission to the broker.
5. Too many birds, only one stone
As Forex traders know, there are only eight major currencies you can focus on. The rest is tied to them, one way or another, so that makes your focus more narrow.
On the other hand, stocks have an infinite variety, depending on the sphere, trading volume, and many other factors. You need to study the market to make sure you pick just the right asset for your portfolio.
6. Who are you, really?
Depending on your preferred trading style, you might like Forex or stocks more. Your strategy might help you decide between those two instruments.
If you are:
A short-term trader, you might want to stick with Forex. The lack of commission, liquidity and volatility will help you work your intraday strategies, get the maximum profit, and sustain the margin requirements.
A medium-term trader, you are free to choose! Both stocks and Forex can offer you a good profit if you play their advantages right. Make sure you dedicate enough time to the market analysis if you pick stocks, though!
A long-term trader, then you could look into stocks more. Their price changes tend to be less sudden, which means that you can make an ongoing strategy and follow it to profit.
Trading stocks is a beautiful opportunity to learn even more about the world of finance and investment. Make sure you have your analytics-ready sources, your trading journal open, and go ahead - your profit is waiting for you.