Stock or Forex Trading – Which is Right for You?
There’s no question that the end goal of trading (any type of trading) is to profit as much as possible. But most people don’t really stop to think about how to best reach this goal before jumping in. They don’t really consider whether currency trading or stock trading will best reach their financial goals. In fact, most people just randomly choose one of these paths and then get started. However, by taking a good look at your long-term goals and your personal investment style, you may find that there are better opportunities out there than the one(s) you’ve chosen thus far. For this reason, there’s never been a better time to take a hard look at your current strategy and to make any necessary adjustments to boost your profitability.
There’s no question that the end goal of trading (any type of trading) is to profit as much as possible. But most people don’t really stop to think about how to best reach this goal before jumping in. They don’t really consider whether currency trading or stock trading will best reach their financial goals. In fact, most people just randomly choose one of these paths and then get started. However, by taking a good look at your long-term goals and your personal investment style, you may find that there are better opportunities out there than the one(s) you’ve chosen thus far. For this reason, there’s never been a better time to take a hard look at your current strategy and to make any necessary adjustments to boost your profitability.
Stocks vs. Forex – Points to Ponder
If you’re looking to profit in the short term, it’s only logical to trade an asset whose price will fluctuate dramatically. After all, if it doesn’t move steeply, you won’t make much money. On the surface then, it would seem that trading stocks offer better advantages in this regard. In the past ten years on average, the S&P 500 Stock Index has moved nearly double the range of the EUR/USD pair. Individual stocks can move even more than the S&P in the same time period (both up and down).
When taking a deeper look, however, it becomes obvious that Forex trading offers one significant advantage over stock trading, even if the price fluctuations aren’t as steep. This advantage is called leverage. Leverage is the total maximum possible borrowing ratio that you can use on a trade. So, with a leverage of 1:100, a trader could trade with 100 times his deposit. In other words, a deposit of $1 with 1:100 leverage would allow a trader to place a trade of $100.
For most licensed and regulated stock brokers, the maximum leverage available is 1:2. Most Forex brokers, however, offer a leverage of 1:200, with some offering up to 1:1000. This means that if you use leverage appropriately, you can potentially earn a hundred times as much on a currency movement than you can on a stock movement. Of course, it should be noted that when trading with leverage, you can also lose money at a faster rate, and this should be taken into consideration when planning your trading strategy and determining how much leverage to use.
Long Term vs. Short Term
If you plan to hold trades for the long term, hand-picking stocks that will gain in a bull market is probably the best way to go. But if you’re looking to take profits daily, there are several genuine reasons why trading Forex might be the better option. Firstly, currency trading has lower costs per trade, which makes it more cost-efficient for traders looking to open and close trades regularly (or even semi-regularly). Secondly, the Forex market is open 24 hours a day, 5 days a week, unlike the stock market, which is only open for seven hours a day (depending on your country). If you plan to trade during off-hours, trading Forex may be your only way to trade in real time, as placing stock trades during off hours can be dangerous due to overnight price fluctuations. Lastly, the ability to trade Forex with high leverage makes it possible to profit from a short-term trade without waiting for a bull market to take effect.
Conclusion
The type of trading that is ideal for you will depend on your financial goals, your time frame for profits and your risk appetite. If you’re entering the market for long-term financial gain, stock trading may provide the type of returns you’re looking for. If you are seeking short-term gains, trading Forex may provide the solution for you, especially if you have a risk appetite that can handle trading with leverage.
As always, make sure to weigh your options carefully and to understand all aspects of the market before implementing your trading plan.
