Top 5 Advantages of Trading Forex vs. Stocks
By Kiana Danial
1. The Forex Market Is The Most Liquid Market and Is Open 24 Hours A Day
The forex market is the largest market in the world, with approximately $4 trillion in liquidity each day around the globe. That means the currency market is over 53 times larger than the New York Stock Exchange’s daily stock trade volume of $74 billion. The enormity and liquidity of the forex market means that you can get in and out of trades at almost any time of almost any size with fast, smooth execution.
While stock trading forces you to trade only when the stock markets are open the forex market doesn’t stop at four o’clock. The forex market is a non-stop 24-hour market, starting on Sunday at 5 p.m. (ET) with the opening of the market in Sydney and Singapore and closing on Friday at 4 p.m. (ET) in New York. You can trade around the clock with the market open followed by Tokyo, London, and finally New York; therefore, you can get in or out of the market at anytime, without waiting for an opening bell or encountering a market gap.
2. Only A Few Major Currencies Pairs vs. Thousands of Stocks
It’s practically impossible to follow all thousands of stocks listed on the NYSE and NASDAQ while deciding on the best stock to invest in. Following a currency pair is much easier since there are only seven major currencies in the world. Currencies are traded in pairs, which means forex trading is a simultaneous buying of one currency and selling of another— so you will be comparing one currency against another. The limited number of currency pairs enables you to manage your time more effectively, focusing on each of the seven major currencies and finding out which is the most suitable for you.
3. Equal Opportunity For Bears And Bulls
In the forex market, trading opportunities exist regardless of the market movement. In other words, you can be short or long and still have equal potential for profit and risk. There is no shame in short selling. This is because currency trading always involves buying one currency and selling another at the same time, and you can buy (sell) either side of that pairs and remain a bull (bear) at all times.
Furthermore, with the new Dow Jones FXCM Dollar Index, you can be either a bull or bear on only one currency— the safe haven US dollar—without the necessity of trading the US dollar in a pair. So when you have an opinion only on the USD, you can go bull or bear on US dollar only.
4. Get A Bigger Fish With Smaller Bait
In the forex market, a smaller deposit is needed for a larger contract value. Leverage, or a loan that is provided to a trader by a broker, is more than fifty times higher in forex trading than in the stock market*. In stock trading, your maximum leverage is only 2:1, but in the forex world it can vary from 50:1 to 200:1. A higher leverage can result in a significant return, but it’s also important to remember that leverage is a double-edged sword. Leverage has the potential to enlarge your losses and profits by the same magnitude.
5. Free Forex Education/Training Easily Accessible
You don’t have to go into debt and get a college degree to become a master in forex trading. Most forex brokers offer demo accounts for free to help new traders build trading skills before they actually enter the market. Additionally, free research, analysis, educational articles, and videos are available on the Internet.
*Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.
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