Which is best for you – Foreign Exchange or Stock Exchange? To answer that question, we must weigh both of them on the same scale and see if one can tip the balance over the other.
If you are the conventional ‘long only’ or buy-and-hold investor, you have some very good reasons for staying involved in the stock market. Statistically speaking, investors tend to get profitable returns from stocks and the taxation is sufferable.
But if it is trading you are keen on, you might want to hold your horses and take long hard look at Foreign exchange as well because it too has its own share of unique benefits.
Let us now go over some of the considerations that you would have need before choosing between them. Is it going to be Forex or Stock? Let’s find out.
1.Do you prefer fundamental analysis or technical?
If you are into assessing things in technical terms, then Forex is the better suited art form for you. On the other hand, if you are more about inherent value and subjective evaluation, your trading strategy is better suited to stock exchange. Your preferred method of analysis will come in very handy in your activities as a trader.
Forex markets differ a lot here from any other kind. While in stocks you will usually come across a ratio along the lines of 2:1, Forex can give you ludicrous ratios up to 100:1. So with Forex trading, whatever returns you get are exponential as per the given ratio of leverage. The upside is, you can make a heck of lot of green off of a very small seed. The downside is you can lose the same amount if your trade goes south.
Bad trades come with the burning desire to make up for lost bounty. But can you actively control and suppress that desire when logic dictates you take leave it alone and reassess your trading strategy. You can never really know until the situation presents itself. This is an essential skill you need to make Forex trading work for you. With stocks, any potential losses are unlikely to go beyond your initial investment.
Bearish bets with Forex trading is a rather simple matter. For instance, if you are predicting the Canadian dollar will end up higher compared to the US dollar, simply sell the Canadian dollar vs. US Dollar in the market.
5.Number of positions
Number of currencies you can trade in a Forex market is obviously finite. In fact, as of 2013, only four of them account over three quarters of the trillions of dollar worth of trades executed each day. They are the US dollar, Euro, Japanese Yen and the English pound. Other major currencies include the Australian dollar, Swiss Franc, and Canadian dollar. A stock trader however has a veritable options list numbering in the thousands, and that is just in US.
Is your focus more toward a macroeconomic perspective on events or do you prefer doing some thorough searching in the sewers of whatever corporation or industry you are trading in? If you prefer the former, currency exchange should be right up your street.
Your approach toward potential risks is a key factor to consider when choosing between trading stocks and trading currencies. If you are not suited to taking on risky moves, do yourself a favor and play stocks instead of Forex.
So which is it to be then? Hopefully, with the considerations listed above, you now have a clearer idea of which kind of trading would suit you best.