Should I Trade Forex or Stocks?

Many aspiring investors will find themselves confronted with the same question; Should I trade Forex or Stocks?

Many traders are attracted to forex trading because of the ease of access and seemingly endless trading opportunities. Historically, the idea of investing has been something far out of reach of the average Joe. But around a decade ago, Forex brokers dramatically changed the ideology that investing is only for the privileged.

Thanks to clear regulations, simple account opening procedures, a variety of funding methods, low minimum deposits and easy to use trading platforms, almost anyone can now trade Forex. Add the fact that technology has been aggressively democratising finance, making it more and more accessible. Some apps let you invest in ETFs with $20, others allow you to buy fractions of a share of a publicly listed company for a dollar.

In the past couple of years, forex brokers such as Propex 24 have evolved into much more than simple brokers that offer foreign currency exchange. You may be aware that many retail FX brokers such as ourselves, also offer precious metals, energy products, cryptocurrencies and even indices.

Now, there is a growing trend of brokers introducing stocks alongside the classic trading pairs and this trend has put the same question on every trader’s mind; should I trade Forex or Stocks?

The Downsides of Trading Stocks versus Forex

Investing in stocks lacks many of the benefits that Forex trading is best known for offering.

Stocks Have Shorter Trading Sessions than Forex

Every stock market in the world trades for several hours, only during local business hours. Whereas the Forex market is open to trade 24-hours a day, five days a week. Yes, you could buy different shares on different stock markets at different times of the day, but when the market is closed your capital is locked, but you’re not earning.

Stocks are Less Volatile than Forex

Stocks tend to trend up or crash. This makes it very difficult to profit from short term trading strategies. On the Forex market, a single currency pair can experience several breakouts in a different direction in a single day. Thanks to this volatility, the Forex market offers an abundance of opportunity. It allows traders to profit from holding short term positions which allows them to trade the same capital multiple times a day.

Stock Brokers Offer Lower Leverage

Stockbrokers do not offer leverage when buying shares, even if you hold them in an account. Forex brokers offer leverage, which on average in Australia is 100:1. In some rare cases, leverage can be even higher.

Stock Trading is More Expensive than Forex Trading

Stockbrokers charge differently to forex brokers. A stockbroker charges you per deal, as opposed to calculating commissions based on the value of your investment or trade. A stockbroker may cost in the region of $5 to $20 per deal. If you buy ten shares of Commonwealth Bank (CBA) for $70.00, you will pay a commission of around $20 with the major Australian share trading brokers.

The Stock Market is not as Liquid as the Forex Market

Yes, the New York Stock Exchange is the largest exchange in the world by any metric, including liquidity. However, not all 2,300 shares listed on the exchange are as popular as Apple Inc (APPL). Many shares are thinly-traded and very illiquid. Don’t let anything fool you into thinking that liquidity, volume or market cap on any stock exchange comes anywhere close to the $6.6 Trillion that is traded each day on the foreign exchange market.

You Usually Only Buy and Hold Shares

If you are trading on the stock market, you usually buy and hold stocks, then wait for them to appreciate. Sure, the objective of any publicly listed company is to perform well, pay dividends and boast strong fundamentals which inevitably raises the price of its shares. It can take a long time for a stock to increase in value; meanwhile, your cash is locked up. Keep in mind that just like Forex, there are various derivatives available such as Options and CFDs where you can speculate on the price of different stocks, usually with leverage and the option to short. But it’s often much more expensive and opens yourself to various other risks when markets close for the day.

How Forex Brokers Make Trading Stocks Better

Based on the above comparison that is definitely one-sided, you will notice that stock trading is very different from forex trading. In its natural form, trading stocks is only really suitable for long term investment as opposed to active trading strategies.

However, Forex brokers have started introducing global stocks on their trading platforms. They do not merely offer the ability to buy shares. Still, They have added them as CFDs, allowing them to be traded just like Forex.

Because of how forex brokers run their business and how CFD products function, stock trading has started to gain interest with Forex traders and short-term speculators, forex brokers have managed to flip some of the disadvantages of trading stocks to make them more attractive.

While there is little that a Forex broker can do about exchange trading hours, they have managed to solve other critical issues. FX Brokers that offer shares on their trading platforms allow clients to short-sell, just as they can on EUR/USD. Brokers also provide traders leverage on stocks. The commissions charged for trading shares with a retail FX broker are also closely aligned with their FX trading pairs.

The Bottom Line on Whether you Should Trade Forex or Stocks?

With so many investment products on the table, it can be hard to choose whether to trade forex or stocks. Both forex trading and stock trading are highly popular trading products.

One of the merits of dealing with certain Forex brokers is that they could also offer many other asset classes. You may not open your trading account with the intention of trading stocks. Still, if opportunity strikes, you wouldn’t want to find yourself in a situation where you can’t do anything about it.

Even so, many active traders would argue that Forex trading trump stock trading because of the volume, volatility, leverage and long trading sessions.

Disclaimer:
Any advice included in this website or correspondence is general advice only and is based solely on consideration of the investment or trading merits of the financial products alone, without taking into account the investment objectives, financial situation or particular needs (i.e. financial circumstances) of any particular person. Before making an investment or trading decision based on the advice, the recipient should carefully consider the appropriateness of the advice in light of their financial circumstances and should carefully review the PDS of the relevant financial product as provided by your investment broker.