Forex vs Stock Market
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| Forex vs Stock Market |
Are you better off trading the stock market or the forex market? Now?
No, this is quite a generic question. But it is the one that I come across time and time again. So today, I want to look at this in some more detail. So you can get an idea of what the advantages and disadvantages are of both, then you can make your decision which way you want to go.
Here we are back in sunny England. For those of you that have been wondering where I've been for the last few weeks, I've been off the airwaves, I've actually been on my annual vacation to the Philippine Islands flying around, and exploring toy effects 7200 islands that make up the Philippine Islands, and I was able to explore just for them.
So here's to next year, see if we can take in a few more. Before I continue on this very important topic of what's the preferred route to trade in the Forex or the stock market, I want to remind you to subscribe to my channel if you haven't already done so. Now, over the last couple of years, I put together a whole bunch of educational videos all free, once you subscribe to the blog, that will be there at your fingertips to explore in your own time. Also, don't forget to hit the notification icon. That way, you're going to be notified the moment a new video has been released. Okay, let's get straight into it. So what is the best to trade?
Well, let me say I think this really does come down to your personal objective, as much as anything quite so what is the best approach or generally speaking, and I mean this in really general terms, stock market investing is for the longer term. So for example, if you have a long term objective, so a five to 10-year plan, you might want to look to fund pension or indeed pay for school fees, that generally speaking, trading the stocks will be the preferred approach, you can find some stocks with some decent balance sheets and decent price-earnings ratios. And a decent Outlook with a good customer base and a sound business model than that, again, could be the preferred approach. Think about it for a moment. Most pension funds that make up the pension industry are made up of stocks and bonds a combination of the two.
Very rarely do you see a pension fund made up of foreign exchange exposure unless is there to hedge of course? So stocks are generally used for more long-term investment. If on the other hand, your objective is shorter term, perhaps you're looking to supplement your income, possibly giving up your day job altogether and become a full-time trader, then in that case, maybe folks might be the preferred approach. And that is for a number of reasons.
First of all, I will say this, if you're trading the stock market, there are literally 1000s and 1000s of different stocks available to trade globally. Of course, if you look at the s&p, for example, that's made up of 500 US Top stocks, the Russell Index, made up of 3000 stocks. And of course, that's just the United States alone, the same in the UK, and around Europe, the stock market is made up of multiple multiple stocks, getting a got a handle on any one individual stock could be quite difficult, you got to do a lot of research. However, if you're inclined to be able to do this research, if you've got the know-how, and you've got the experience, you can analyze company data, you can analyze balance sheets, then, of course, stocks can be very, very portable, but there's a whole bunch of stocks out there that you need to do this work on this analysis on.
If on the other hand, you look at the forex market. Now the forex market is generally made up of say 10 different currency pairs. So you can actually spend a lot less time analyzing an individual currency pair than the vast array of stocks available out there. But again, it does depend on personal objective, and of course, the amount of time that you can allocate to this. Also, if you're inclined to be a fundamental trader, a fundamental trader basically looks at the reasons why a stock or indeed a currency pair will move if you are a fundamental trader, that of course, trading stocks may be preferred way to go because the fundamentals are a lot easier to potentially understand then possibly the forex market. Certainly, if you understand how to read a company, balance sheet, and so forth. If on the other hand, you want to be a technical trader, then I would suggest that the forex market might be easier.
\The Forex market is huge. It has massive participation, over $5 trillion a day made up of retail and of course institutional players. Now the other thing that you need to consider is the ease of access is far easier when starting off to access the forex market than it is the stock market. Often people that are coming into trading for the first time only have a limited only want to risk a limited amount of money when getting going to see if trading is for them or not. Now when you start trading the Forex market, you can start with just a few $100 very difficult to do that in the stock market. Many brokers won't allow even you to open an account Want to trade stocks unless you have a few $1,000 to get going is significantly higher than opening up a Forex account.
Now, the other thing that you have to consider is leverage if you're starting off with just $1,000. That of course, the forex market offers leverage, sometimes insane amounts of leverage. Now, I don't encourage anyone to trade with insane amounts of leverage in the old days, or they used to be able to offer 200 500 to one, I think that's absolutely ludicrous. Another article talks about this, you should be trading leverage of really nothing more than really 20 to one, the recent e s ma regulations in Europe, in fact, pull down the leverage that's permitted. But when you're trading the Forex market, you have access to huge leverage. So you can start off with just $1,000. If you're trading 20, to one leverage, you're basically exposing yourself to $20,000 in the market.
That's not as easy to do when you're trading the stock market to need a higher amount of money to start with when you're trading the stocks. And certainly, if you're learning, then you may not want to risk a higher amount when getting going to the site to decide whether or not trading is for you or not. So leverage is available in the forex market much more so than in the stock market. And certainly, you can start experimenting with small amounts of money to see if you indeed have what it takes to be a trader, the cost of trading, generally speaking, is cheaper in the forex market might just pay a commission small commission. And indeed the spread some cases, you won't pay any commission at all, you'll just pay the spread when stocks are almost certain, you're going to spend money on the spread, as well as a decent-sized commission, certainly more than the forex market in most cases. And if you're starting off in trading, you know, you're deciding if this is going to be right for you, you're finding your feet, the last thing you want to be doing is competing against the broker with the fees and the spreads and the Commission's as well.
Now the forex market is open 24 hours a day. So no matter what time zone you're in, there's always going to be a market open, of course not on weekends. Now, certain times of the day will be more liquid, of course. But of course, you can trade different currencies in different time zones to fit in with where the liquidity is, who also fit into your lifestyle. If you've got a day job, what have you may be a shift worker, or maybe only have a few hours a day in the evening?
Now, if you're trading stocks, for example, stock markets are generally open from eight to four on the Stock Markets closed, you can't trade if you want to trade the US stock market. Generally speaking, you're going to be there when the US stock market is open at specific times.
Now the next thing you need to consider is liquidity. Now the major forex pairs generally have super large liquidity, certainly the Euro against the US dollar, which is the most actively traded currency pair out there. This means that you can always get out of a position whether it's for-profit or for loss without too much slippage, which is basically the difference in the price that you see on the screen to the price that you get filled at.
Now, sometimes in the stocks, certainly in the lower cap stocks, there's no this liquidity is not always there, which means the slippage could be higher, sometimes you're in a position you want to get out, and you can't get out because liquidity has dried up. So what you see on the screen isn't necessarily what you get. But on smaller accounts, this liquidity can really affect you, the last thing you want to be doing is losing money on the slippage. Now, of course, the high cap stocks, have normally higher liquidity. But the higher cap stocks generally means that the price of the stock is going to be higher, the price of the stock is higher, chances are when you're starting off in trading a smaller account, you're not going to be able to get much exposure because of the price of the stock is higher.
So liquidity is the main factor, super high liquidity in the forex market, sometimes not as high liquidity in the stock market. If there is high liquidity, generally, the cost of the stock is higher, meaning your exposure to that stock is going to be limited. Now, if you're inclined to be a technical trader, now technical trainer looks at previous price action and looks for patterns to repeat themselves. They look at charts to see where price has been in the past to see where prices may go in the future. Now, in my opinion, and this really is just my opinion, that the technical traders are more angled to the forex market than they are in the stock market. Why? Because the forex market is the largest market on the planet is actually equates to $5 trillion a day.
So the key levels of support and resistance, I think are more respected in the forex market, because there are many, many more players than there are in the stock market, which has made me generally driven by fundamentals more so than the technicals. As I said, this really is a personal choice based on objectives. And based on your character, are you more likely to be a fundamental trader? Where you're looking to analyze company balance sheets and looking for price-earnings ratios and looking at markets in general? Or are you more likely to be a technical trader?
In which case I think that the forex market might be a preferred way to go. Certainly, if you're starting off the ease of access that liquidity trades the forex market all day long for me. For those that don't know me, I started my trading career over 30 years ago in the City of London
standing there in the trading pits, look at that guy there with all that hair. Isn't that amazing? For me, the migration from the pits to the screens was quite easy. Because of the forex market. I didn't have all the knowledge about company balance sheets and didn't have that experience. For me. I purely looked at the price for me trading the Forex market is much more akin to trading that I grew up within the trading pits. That's why I've chosen the forex market.
That's why it gives me the best opportunity because it's something that I've grown up with whatever choice you decide, I hope you are successful. As always, if you liked my video, give me a thumbs up if you didn't give me a thumbs down. Don't forget to leave a comment. And as I said at the beginning, make sure you subscribe to the channel and blog so you can access all my previous articles. Don't forget to hit that notification icon. So you're notified the moment my next article is released. Till next acticle, happy trading and good luck.