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Forex Trading

Forex Trading Better Than Stock Trading

Five Reasons Why Foreign Exchange Trading Is Better Than Trading Stocks

Forex trading is better than stock trading—that’s a heinous generalization and it’s not necessarily true. Nevertheless, there are certain aspects of forex trading that may make this form of speculating more appealing to you than stock trading.

Here are five such reasons:

1. Forex Never Sleeps

Again, that’s not entirely accurate, but it’s not too far off. 

The foreign currency exchange markets open on Monday morning in New Zealand, which is Sunday in the U.S., and the markets stay open continually until 5:00pm New York Time on Friday when the New York markets close.

During that long week, the forex markets are open around the clock and around the globe.

The stock market forces you to operate among much more limited—and limiting—hours of operation. Stock traders are more bound to the clock. Stock traders have to follow schedules and take weekends off.

Successful foreign exchange traders enjoy a much more flexible schedule. If you like trading on your own time and terms, forex trading beats stock trading hands down.

2. Forex Brokers Give You Leverage

Much like Red Bull gives you wings, forex brokers give you leverage. FX brokers, that is, allow you to borrow money to trade forex. This enables the forex trader to control much larger positions than would be possible without these loans.

You can trade stocks “on margin” according to a similar idea, but the amount of leverage a stock broker will grant you will never be anything close to the ratios that FX brokers allow (for example, many forex brokers let you borrow $400 for every $1 invested).

Of course leverage is not an unconditionally good thing; it depends how you use it. Still, the fact that forex trading does offer such large quantities of leverage must be counted as a desirable attribute that forex trading has and stock trading doesn’t.

3. The Forex Markets Are Always Liquid

The forex marketplace is incredibly massive. The sheer size of this marketplace offers liquidity that can’t be matched by any other trader’s market.

Liquidity is the degree to which an asset can be bought and sold without having a significant effect on the price of the property.

The liquidity of the major currencies in the foreign exchange market far outweighs the liquidity of anything that can be found in the stock market. Stocks often move drastically when a major investor or fund sells a big block of shares. In the forex markets, millions of investors and funds have to sell at the same time to make a similar impact on price.

The unbeatable liquidity of the foreign exchange trade means that it is possible to profit from long term investing as well as from day trading—and even from both at the same time. Stock traders usually choose either a short or long-term mentality and stick to it.

4. Forex Trading Doesn’t Depend On a Rising Market

One of the most frustrating things about trading stocks is that it’s hard to make money if the market isn’t going up. Yes, you can take short positions in the stock market using stock options and stock futures contracts, but generally speaking people who trade stocks are hoping that stocks go up.

Suffice it to say that hope of this sort can be deadly when it comes to investing.

Forex trading, by contrast, perpetually offers you the opportunity to “get short” an investment as easily and transparently as you can “get long” an investment. Sometimes, betting on failure is the best bet to make. Forex traders have astronomically more opportunity to capitalize on failure than the average stock trader.

5. Stability Is Important

If you’re new to forex trading, it may seems strange to call FX trading “stable.” When you’re first starting out, the forex markets may seem quite the opposite of stable.

But underneath all the flashing, changing, racing currency prices, there is the reality that currencies represent the wealth of entire nations, in contrast to stocks, which represent the wealth of individual companies.

Currency pairs, unlike stocks, cannot easily lose 50 percent of their value within one week.

Important Forex Information

The most important step in currency trading is finding the right broker; our forex experts can help. See our
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The earlier you can start building a forex trading system that works for you, the better off you will be when trading the markets. Learn to build forex trading systems.  arrow

In order to understand when to sell short in the forex market, we must examine individual currency short selling strategies. Learn the strategy of short selling currencies.  arrow

While it is true that the bigger your position, the more you can benefit from utilizing the carry trade forex strategy, smaller investors can beneit, too. Read about the carry trade.  arrow