Even though Forex trading is now a proven investment system that is rapidly growing in popularity and offers many distinct advantages over traditional stock trading, many investors still think stocks are a better investment. However, considering the volatility of the current stock market, many investors are now switching away from or supplementing their stock investments with currency trading.
One of the main comparative advantages that Forex offers over stocks is the scope of the market. With over 8,000 stocks listed on the NASDAQ (National Association of Securities Dealers Automated Quotations system) and NYSE (New York Stock Exchange) combined, playing the stock market can be overwhelming and it is very difficult, if not impossible to be an expert on every industry represented on the exchanges. In comparison, the Forex market trades on just six major currency pairs and allows traders to specialize in particular currency pairs with a much narrower focus.
The major stock equity markets are only for trading during normal business hours. In contrast, the Forex market is always open for business because investors can trade around the clock during the U.S., Asian and European market hours combined. Instead of being controlled by the opening and closing bells of the New York Stock Exchange, Forex allows the creation of your own trading schedule.
Leverage is important in the stock market because it allows investors to use various financial instruments like margin accounts to increase their potential return on an investment, although it can also increase the potential losses on a trade too. When you consider that the maximum leverage ratio for stocks is typically 2:1, leverage can be one of the most exciting and attractive components of the Forex market because it allows investors to use exponentially larger ratios that hover in the 400:1 range. The Forex market also has no restrictions on short selling, unlike the stock market where the potential to make money depends on whether the market is rising or falling. No matter how the currency market is moving, currency traders always have an equal potential to make money because they can buy either side of the currency pairs and it doesn’t matter if the market is rising or falling.
Forex markets do not have a central exchange location and all trades are executed directly with the institution selling a currency. This eliminates the middlemen associated with stock trading and gives Forex traders faster access with lower costs because all trades are executed instantly. Unlike online stock trades where the price that you think you’re getting is not always what ends up on the final order, there’s no discrepancy between the price displayed and the execution price in Forex trades and most brokers will guarantee all stop, limit, and entry orders. Another very attractive part of the Forex market is that the brokers will do not charge any commissions or transaction fees to complete a trade, making Forex trading costs lower than any other market. Forex brokers are compensated through the bid/ask prices and spread is always fully transparent, This allows traders to know exactly how much the broker is making on every deal, and it doesn’t cost them one dime.
Because the relationships between analysts, brokers, and investment houses in the stock market are very complex, the stock market is easily influenced by large funds buying or selling particular stocks. Regardless of government intervention in the market, there will always be factors that drive up the value of a particular purchase order or brokers that receive higher commissions for selling a specific stock. In contrast, the immense size of the Forex market makes it very difficult for any single government, bank, or hedge fund to influence the value of a particular currency pair. Another factor is that the number of available shares for a particular stock is far smaller than the amount of currency in any one country and the global economic forces that drive the currency market are much harder to control and manipulate.
Although many investors currently supplement their stock holdings with positions in the Forex Market, the multiple advantages of currency trading are so hard to ignore that many investors are now deciding to fore-go stocks completely. Regardless of how you incorporate currency trading into your own portfolio, the advantages of the Forex market over the stock market are too numerous to ignore.
