If you have decided to become a trader, you might be on the fence about what types of assets you want to trade to start out.
Since you are here, you clearly are intrigued by the foreign exchange market and are thinking about becoming a forex trader.
But you also might be wondering how forex compares to a more “traditional” investment avenue such as stocks.
Is forex trading better than stock trading? Well, technically, “better” is a highly subjective term. But we can list quite a few advantages that forex has over stock trading.
In this article, we will go over some of those benefits in detail. Let’s get started.
1. With stocks, there are more assets to follow.
When it comes to stock trading, it is hard to know where to even begin. Which of the thousands of stocks out there do you want to follow, and why?
You do not even need to worry about making such a decision with currency trading. There are just not that many major pairs, so keeping up with them is fast and easy.
What about all the minor currency pairs? It is up to you what you want to do about these, but as a beginner, there really is no compelling reason to even pay attention to them.
They tend to be much more volatile and unpredictable than the major currency pairs. So, the major pairs are where you will find the best opportunities.
2. Forex trading offers you the chance to use high leverage.
When you trade stocks through regulated brokers in the US, you will run up against some pretty tight margin limits—2:1 for overnight positions, and 4:1 for intraday positions.
But if you are trading forex in the US, you can find leverage as high as 50:1. If you are an international FX trader, you can find leverage even higher than that.
So, if you are looking to trade with high leverage, forex is a far superior option to stock trading.
3. It is rare not to be able to place a forex order successfully.
Trying to trade a low-volume stock? Do not be surprised if your order is not always able to be filled.
This is a problem that you should not run into in the forex market. When you place an order, you can count on it to be executed reliably.
4. Trading costs for FX are low.
There was a time when trading stocks could be pretty expensive. Thankfully, that is not really the case anymore.
Nonetheless, forex has always been affordable to trade. Usually, you pay the spread, but not commissions, and it is easy to see at a glance what the spread will cost you.
5. The liquidity of the forex market beats the liquidity of the stock market.
Trillions of dollars turn over in the currency markets every day. FX is considered a more liquid market than the stock market. Plenty of action each day means plenty of opportunities.
To this date, the daily turnover of the forex market is more than 7 trillion dollars.
6. With forex, you can trade day or night.
One of the biggest advantages that the forex market can boast over the stock market is its extended hours.
If you want to trade the New York Stock Exchange (NYSE) or NASDAQ Stock Market (NASDAQ), you need to trade during the market hours of 9:30 am to 4 pm Eastern time. The markets are closed on weekends.
That is a pretty restrictive schedule, especially if you work a full-time day job. It is pretty difficult to monitor and execute trades while you are also juggling your work responsibilities.
But the forex market opens at 5:00 pm Eastern time on Sunday each week and only closes when 5:00 pm Eastern time on Friday rolls around.
In other words, the forex market is only closed two days a week. The rest of the time, it is open even overnight. You can trade 24 hours a day.
That provides you with the opportunity to trade on evenings or nights if you need to.
Depending on your schedule, that could make the difference between being able to trade or not.
7. Stocks have higher requirements for continuous detailed research.
As we mentioned before, there are thousands of stocks to potentially monitor and trade. If you purchase a stock, you need to have a rationale for doing so.
As with forex trading, you can rely on fundamental or technical analysis. You can also make decisions using price action.
But assuming you are not going to rely 100% on price action or technical analysis, you are going to have to research the stocks you are thinking of buying and selling.
Think about the legwork that goes into researching each new company that interests you. Even if you have bought stock in a company before, you will have to catch up on all the latest developments for that company and the industry it is operating in.
And when it comes to startups, it may be challenging to find the information you need to make a really solid decision.
Keeping track of what is going on with major currency pairs is not as difficult. That is not to say that the global economy is easy to understand—but at least what you learn along the way should continue to be applicable in the future to a large degree.
8. Market manipulation is less of an issue with forex than with stocks.
Big players often interfere with the “natural” way the stock market works. They may decide to try and manipulate prices by making large purchases or sales.
In some situations, the impacts of these actions can be huge—and sometimes devastating for small retail traders.
But this is not something you have to worry about when you trade forex. Why not? Because the high liquidity of FX means that no matter how large a player is, they are not going to be able to execute market manipulation on the same scale they could with stocks.
Conclusion: Forex Offers Many Advantages Over Stocks
Now you know some of the benefits that forex trading offers over stock trading. Unlike the stock market, the FX market is open 24 hours a day. It is liquid, affordable, reliable, and less subject to the whims of manipulators. You also can trade with much higher leverage.
Additionally, a few major currency pairs are less overwhelming and more manageable from a research and planning standpoint than thousands of stocks.
Keep in mind that the cool thing about trading is that what you learn in one market can translate to another.
So, you may well find that some of the strategies you develop to trade forex can also help you trade stocks later down the line.