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FINANCE

Why Choose Forex Trading Instead Of Stocks ?

Today’s active traders and investors have access to many trading instruments, but among them, stocks and forex trading are the most popular. Deciding which of the two markets to trade can be quite complicated, and many factors need to be considered in order to make the best choice. However, forex trading clearly has many advantages over stocks trading, some of which are as follows:

1. Forex is the world’s largest market

Global forex market participants trade over US$5 trillion worth of currencies every day. A 2016 poll by the Bank for International Settlements (BIS) revealed that daily trading volumes averaged US$5.1 trillion or about US$213 million per hour. In comparison, the New York Stock Exchange had an average daily trading volume of US$38.5 billion in May 2017. The main benefit of a larger market is that it is more difficult for individual institutions and traders to engage in price manipulation.

2. Robust Liquidity

Liquidity is the speed and ease with which forex traders can exchange an asset for another, in which the asset is a currency pair. Since the global forex market is huge, it offers traders a lot of liquidity allowing them to enter and exit positions very quickly.

High liquidity also helps lower transaction costs for traders since financial institutions charge much less to set up trades than in stock trading.

A market which enjoys substantial liquidity can also more easily handle big increases in trading volume without significant changes in the price. As such, the forex market is less vulnerable to any sharp change in trading volumes aimed at causing price volatility.

3. Substantial Leverage

Forex trading allows you to obtain far greater leverage than stocks trading. Leverage is a tool that allows traders to borrow capital in order to trade much bigger volumes. For instance, if you have access to a 100:1 margin, this means that you can borrow 100 dollars for every dollar you put in. In stocks trading, this ratio is usually 2:1, and it does not apply to everyone.

4. 24-hours availability

Forex markets never sleep. You can make trades at any time of the day or night. Investors from all over the world need to trade currencies so you need to know how people in different time zones operate so you can be able to trade with them during their peak trading times. Fortunately, there are many intermediaries, such as banks and broker-dealers, located in many cities to help service the demand. This 24-hour availability allows investors to combine forex trading with other part-time or full-time jobs if they need to. For instance, if you have a normal 9-5 job, you can trade after you get home from work.

Stock markets, on the other hand, are a lot less accessible and are usually open during the day on business days. Even though they offer an “after hours” trading market, it has many price and volatility issues that discourage retail investors.

5. Minimal or no commissions

Majority of professional forex brokers do not charge additional transaction fees or commissions to trade currencies online or via the phone. Forex trading costs are much lower than any other market and have a tight, consistent, and transparent spread.

6. Market orders are executed instantly

All your forex trades are executed instantly under normal market conditions. Normal market conditions mean that there is no event going on that causes a surge in prices of major currencies. In such conditions, the price you get is the one shown as you execute your market order. You can execute the order directly off real-time prices. Order execution may experience delays when there is a big event, for instance, if a country like the USA is invaded.

7. No middlemen

In stocks trading, you have to deal with middlemen which only costs you time, money or both. On the other hand, forex trading is decentralized, which means quotes from different traders may vary. Competition between traders is so fierce that you are always assured you’ll get the best deals.

8. There’s always an opportunity to make money

Unlike in the stock market, there are no restrictions on short selling in the forex market. There are always trading opportunities in the forex market regardless of whether the trade is long or short.

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