Forex market or the stock market, what should you pick? Since there are many similarities between these two markets, which one is the right match for your financial needs and trading style is something you should understand. You may even discover that investing in both could do wonders for your finances, but when you must choose, it is important to assess both markets.
Is there anything in particular in the forex or stock market that appeals to you? Do you truly understand what differentiates these two markets? Read on to learn more:
- Factors that affect trading prices
The forex market functions at a global level since there are several currencies that are traded. Thus the economic and social conditions in various nations affect their respective currencies. As a forex trader, you should take the time to thoroughly research that may have an impact on the macroeconomics of the countries whose currencies your money is riding on. This could be inflation, interest rates, gross domestic product, growth, current account situation, etc.
The larger picture does not always have an impact on the stock market. The financial condition of companies and their earnings affect the prices of stock more directly. Of course, an economy’s health would still have some impact, but what matters the most is how well a company performs. Therefore, as a stock market trader, you should keep track of the economy but you need to dive deeper into the background and performance of the company you hold the stocks for.
If it is easy to buy or sell an asset in the market because there are several traders who’re willing to buy or sell, you can say that the market is liquid. The probability of having a successful trade depends on the volume that is traded in a particular market. As a rule, higher liquidity is often a result of the higher trading volume.
There’s no doubt that both the stock market and the currency market are liquid. But the forex market wins the liquidity race because it has a reputation for being the biggest and the most liquid financial market in the world. It owes this to the huge volumes of trades conducted on a daily basis. This implies that the price movements aren’t too drastic and therefore it’s possible to buy or sell currencies in large quantities.
Though the stock market offers the liquidity, the volume of everyday trades is relatively less. However, dealing with smaller shares that aren’t a part of the blue-chip world can be cumbersome.
How do you earn more money by investing less of your own? In the forex market, you use leverage. In this investment practice, you trade with borrowed funds speculating a good return on your investment. When you invest X amount in a trade, the broker will multiply the bet on the basis of the leverage available. So if you avail leverage of 1:10, your bet will be increased by 10 times. While it is a good strategy to earn more, it could backfire and you may end up losing more than you can payback.
Note that you can use leverage as a strategy in the stock market too but it turns out to be a more risky proposition in the forex market.
Fluctuations in the currency prices are referred to as volatility. The forex market is highly volatile because trades in this one are conducted globally. However, it is possible to minimize your risks because the price movements aren’t too drastic. On the contrary, the stock market is not so volatile and the price patterns are easier to analyze. If you want to avoid risks as much as possible, stocks are a safer bet.
Which will profit most?
Forex pairs or stocks, out of the two, which brings more profits? Every trader has pondered about this at the beginning of their trading career. But let us tell you what each one of them would also agree to, there’s no clear answer to this. Making the right choice here is all about taking into consideration capital, financial goals, risk factors, and traders’ personality.
To illustrate how financial goals and traders’ personality comes into play, understand this. If you want to trade in the short-term then trading is more likely to bring you higher profits. This is because you would then want to make several small profits in a shorter time frame, thereby making the most of the market’s volatility. For a well-trained forex trader, this is a good option since they would not limit their trades to just a single economy. Following an expert trader’s strategies could be rewarding even for forex social traders.
But if you’re willing to invest your money in the long-term, hoping to get returns sometime in the future, stock markets can be a better choice. Since they’re better regulated and thus safer, you can simply stay unaffected by short-term losses and eye the bigger picture.
While both forex and stocks offer excellent opportunities to earn more, you must make sure you’re fully aware of the risks involved.
Which is easier to trade?
If one is to comment on the ease of trading, technically, forex trading or blue-chip stock trading can be considered somewhat simpler to trade. This, of course, has become possible because educational platforms and trading tools that also educate are readily accessible. You don’t really need a lot of technical analysis to learn how to buy stocks. It can be done from the comfort of your home in just a few clicks. Online trading platforms such as MT4 and MT5 have made buying and selling forex positions a lot simpler. Even amateur traders can pick positions without putting to use any complicated instruments.
But you must remember that all of this isn’t enough to have a successful trading career. Experienced traders would also suggest that given the risks in both markets, the key to success lies in thorough market research and solid trading strategies. Technical analysis and the ability to decipher data are important as is having faith in your strategies so your trading decisions aren’t based on impulse.