Forex or the stock: what are the advantages of the forex market?

Traders often wonder what to choose for trading: forex or stocks. Despite their similarities, the forex market and the stock market differ in many aspects. Forex has its own characteristics that distinguish it from other markets, and according to many traders, this makes it much more attractive for trading.

Let's see why forex trading has become so popular. And also what are its fundamental differences from the stock market.

Some traders decide to trade forex in order to diversify their investment portfolio. In fact, diversification is one of the main rules of money management. Investments should be distributed among various assets, markets and sources of income. This allows you to get a mixed investment portfolio with limited risks and optimal returns.

Some people are passionate about trading and they like to trade. For them, this is a hobby and an additional source of income. Some may consider trading as a game of chance and a source of thrill. And for someone, trading is a profession that takes a whole working day.

What attracts so many people to currency trading? Why has the forex market become so popular? Why do traders often prefer forex trading to other markets? Forex has some significant advantages over other markets, especially for beginners and for people not familiar with trading. Let's look at the main differences between forex and stocks.

24 hours a day 5 days a week

Forex is an over-the-counter market. This means that trading takes place not through a regular exchange, but on the interbank market. Trade continues during business hours of trading sessions of different countries around the world. Thus, the forex market almost never ceases to work. While the stock market is tied to business hours in the country whose stocks are traded.

The currency exchange opens on Monday morning in Sydney and closes on Friday afternoon in New York. New Year remains the only day off during the year.

When the market is open for so long during the week, it allows a large number of people to trade regardless of the time zone in which they are located. The trader has the opportunity to choose when to trade: morning, afternoon, evening or night. At any time, day or night, you will always have the opportunity to find suitable trading opportunities.

The market’s round-the-clock operation allows you to calmly transfer positions through the night without worrying about the gaps that constantly occur in the stock market.

Although round-the-clock trading can be an advantage, for an unprepared trader this can be a curse. Often novice traders spend endless hours in front of the monitor, watching each tick and biting their nails from anxiety.

Liquidity

One of the biggest differences between forex and stocks is the huge size of the forex market, the volume of which, according to recent estimates, is about $ 5 trillion per day. However, most transactions fall on the main currency pairs, such as EUR / USD, USD / JPY, GBP / USD and AUD / USD. The volume of the forex market exceeds the volume of all world stock markets combined, through which about 200 billion dollars a day passes.

The presence of a large volume of trading gives traders many advantages. A large volume means that traders, as a rule, can execute their orders as close as possible to current market prices, as well as go and exit the market at any time, without fear of large gaps.

Liquidity leads to narrower spreads and lower transaction costs.

The forex market has a huge number of participants, which makes it impossible for one trader to affect the price for a long period of time. The market has its own balance, and no player can upset it.

Low fees

In the foreign exchange market, commissions are mainly paid by the spread, that is, the difference between the purchase price and the sale price. Also, a certain commission may be charged for depositing or withdrawing funds from your trading account. While when trading stocks, indices or futures, traders usually have to pay both the spread and the commission to the broker.

Low capital requirements

Forex and CFD trading does not require a lot of start-up capital. You can open a trading account for as little as $ 100. Or use the cent account that many brokers provide and start trading even with $ 10. This makes it possible to trade many traders with a limited amount of capital.

Leverage

Leverage is the ability to use much more trading capital to trade compared to the amount on the trading account that you have.

All brokers provide traders with a leverage that can reach up to 1: 500. What does this mean? Suppose you have a $ 1,000 trading account and your broker gives you a leverage of 1:25. This gives you the ability to control trading capital up to 25 x 1.000 = $ 25.000.

Leverage can help you achieve greater profits, but be careful with its use: the higher the leverage, the higher your risks.

The ability to buy and sell

In the stock market, the main rule of making money is “Buy low, sell high”. This implies that you buy the stock first and then sell it at a higher price.

In the foreign exchange market, you can make a profit in two ways: buy low and sell high, and also sell high and buy low. Your broker allows you to open both long and short positions. If you think that the currency will increase its value, you can buy it. Conversely, if you think that it will lose value compared to another currency, you can sell it.

The ability to make money no matter how a particular currency pair moves is a big forex advantage. You may need 20 stocks to make up a decent investment portfolio, but in forex trading you only need 10 currency pairs that will provide you with twice as many trading opportunities as stocks.

Simplicity

Eight major currency pairs make up most of the market. This allows traders to focus on fewer trading instruments, while at the same time providing a sufficient number of trading opportunities. While the stock market on the NYSE alone has more than 2,000 shares.

Availability

With the help of modern technology, you can trade anytime, anywhere, you just need a mobile device and an Internet connection. Brokers provide desktop and mobile trading platforms, and mobile networks provide fast communication almost everywhere. You can trade when traveling to work, from the bar and even while on vacation.

No need to be a genius

Being a genius, of course, can be useful, but this is not a prerequisite for trade. Anyone who wants to study can trade currencies. You do not need an education in economics, finance or mathematics. You can learn everything yourself.

Available materials and products

The explosion of popularity has led to the creation of many materials and products for the market. Training materials are available everywhere: books, videos, training courses, seminars, and more. In addition, many companies have done forex business by creating charting software, trading signals, advisors and so on. If you are interested in learning about trade or looking for a product, you can easily find everything you need on the Internet.