The stock market and foreign exchange (forex) are two popular options for security traders. For some, forex trading makes more sense, while stocks can be more popular for others. But which one should you trade in tio markets deposit?
One of the biggest reasons traders prefer forex over the stock market is enhanced leverage capabilities. Also, with forex, there are dozens of currencies traded, but most market players trade the seven major pairs. And these are not all.
There are many more benefits associated with forex trading. Let’s look at 7 key reasons you should trade forex instead of stocks.
Forex Market is Larger than Stock Market
A report by the Bank of International Settlements in 2019 showed that the worldwide forex market had an average daily transaction of around 5.1 trillion US dollars that year. This means that the total value of all currency transactions in 2019 was about 6.6 trillion dollars on an average day.
On the other hand, during the first five trading sessions of May 2017, the daily trading volume on the New York Stock Exchange averaged US$38.5 billion.
During the first four sessions of that same month, the daily trading value at Nasdaq reached around US$85 billion. This is almost double what the stock market could capture.
A 24/7 Open Market
The stock market is restricted to the hours of operation of a particular exchange. Most stock markets in the United States open at 9:30 a.m. and get shut at 4:00 p.m.
On the other hand, the foreign exchange market is open 24 hours a day, seven days a week. Most traders can trade from 5:00 p.m. on a Sunday to 5:00 p.m. on a Friday.
Along with this, customer assistance is usually available 24/7 as well. Thus, this allows traders to create their own trading schedules according to different regional markets.
Little to No Commissions
Because many online trading companies now charge no commissions, forex can be more suitable. Most forex traders don’t charge extra if you trade over the phone or online. Thus, there are no additional transactional costs associated.
Forex trading rates are cheaper than most other markets when combined with a narrow, constant, and utterly transparent spread. The bid/ask spread is how most dealers are reimbursed for their work.
Minimal Volume with Robust Liquidity
Because of its size, the forex market provides traders with tremendous liquidity. And there is also the ease with which you can swap one currency for another. High liquidity can assist traders in saving money on transactions and protect them from price manipulation, giving them more flexibility.
When a market has plenty of liquidity, it can manage high rises in daily volume without suffering major price fluctuations. This makes it less vulnerable to price volatility-inducing abrupt changes in trading volume.
No Uptick Comes with Short-Selling
Short selling is not prohibited in the forex market, unlike in the stock market. Thus, there is always an opportunity for traders in the forex market despite the market being short or long.
Also, there is no directional bias in the forex market because currency trading always includes purchasing a particular currency and selling another one. You will always get equal trade links in a rising or sinking market.
Traders prefer forex over stocks because it offers significantly more leverage. Investors can potentially benefit from higher returns if they borrow money to execute trades.
Suppose a trader has access to a margin of 400:1. This means that the trader can make a £4,000,000 deal with only £10,000 in the margin. As a result, they’d only have to put down 0.25% of the total trade as a margin. Eventually, it can bring them higher returns.
Little to No Market Manipulation
During busy trading hours for the major currencies, the liquidity of the FX market makes it difficult for any serious manipulation by a single firm.
This means that private, public, or any individual entities cannot manipulate the forex market, which traders normally experience in the stocks market.
So, there are as many as 7 logical reasons investors should trade forex instead of stocks. As a trader, you gain access to a significantly larger market than the stock market by trading FX. Because of its scale, the stock market has higher liquidity.
Thus, it will allow you to profit from cheaper transaction costs and easier entries into and exits from the forex market.