Any newbie in the field of trading is trying to decide for themselves that what is the best way of Forex vs. Stock Trading, on the stock market.
Let’s answer this question by understanding basic economic concepts about Forex vs. Stock Trading.
What does this mean for us?
Basically, storing money in a bank, you get only a small benefit. In many large economies, interest paid on deposits is less than inflation.
What is better Forex or the Stock Market?
Answering the question of what is better – Forex or the stock market – is quite easy.
If you compare Forex trading and stock trading, it turns out that each market has its own advantages and disadvantages. Ultimately, it comes down to how important these features of the markets are for you personally.
Let’s first take a look at each market individually, and then you can draw some conclusions about what is better than stocks or Forex for traders.
The Forex market is decentralized. It is a trading network of participants from all over the world. The main players in the Forex market used to be investment banks, central banks, hedge funds, and commercial companies.
The stock market is a comprehensive concept that includes groups of buyers and sellers of shares. Company shares, as the name suggests, offer a share in the property. Usually, although not always, these operations are carried out on stock exchanges.
Stock exchanges offer a regulated, transparent, and convenient platform for buyers to do business with the help of sellers.
Trading on these type of exchanges has been historically conducted on the premises of the exchange, and each of the participants shouted the price at which he wanted to buy or sell shares, but the trend of recent years has been strongly associated with electronic trading.
The stock market is very popular, but inferior in size to the Forex market, which is the largest financial market in the world.
Trading stocks or Forex – what to choose? If you focus on the size of the market, then Forex, of course, will be larger. Why are you interested in size?
A larger Forex market gives it greater liquidity and makes it more attractive to traders. This is the result of a huge number of traders at any time. Large, prevalent stocks might also be very liquid.
Why do you think about liquidity, analyzing what to choose – Forex or stocks for investment? Liquidity makes trading an instrument easier.
Vodafone or Microsoft are prime examples. Although, as soon as you go beyond the blue-chip trade, stocks can become significantly less liquid.
And you also need to remember that good liquidity tends to be equated to proportionally tighter spreads and lower transaction costs.
Let’s look at an example of trading. This will help us decide which is better – stocks or Forex. To do this, it is worth comparing typical costs for each option.
What is the better stock market or forex – in numbers
Let’s make use of Microsoft as your liquid share and USD / EUR as your liquid currency pair.
At the time you trade Microsoft, you will pay:
- Market spread and Commission to your broker.
- Microsoft’s price at the time of writing was about $ 52 per share.
- Market spreads can typically range from 2 cents to 5 cents for Microsoft in normal market conditions. This is a range from 0.04% to 0.09%.
- Commissions depend on the broker, but you can pay 10 cents per share. The commission is paid at the opening and closing of the transaction. Now let’s compare this with EUR / USD.
- The most common type of foreign exchange trading is based on a spread with no commission.
- This is how your Trade account works.
- On this type of account, you can pay 1 spread point for trading EUR / USD and without commission.
- Please note that there is a choice of types of accounts that offer various services.
When trading EUR / USD at the level of 1.1190, this transaction value in both directions is 0.0001 / 1 / 1.1190. Want to know how much is obtained as a percentage?
- This is less than 0.01%.
- In this case, Forex has a clear advantage.
The cost of the spread in the opposite direction for trading in a currency position is less than the market spread per share. And also, once you get stock commissions, Forex trading will be even more profitable.
The stock market or Forex, which is better and what to focus on?
Perhaps the key difference when it comes to the question of Forex vs. Stock Trading is the scale of the trader’s focus.
When you look at a single stock, you can focus on a fairly narrow set of variables.
Although you are likely to look at broader trends: factors directly affecting the company in question will be more important along with market forces in your particular sector.
Relatively narrow indicators, such as the company’s debt level, cash flows, income guidance, etc., will be important.
Forex vs Stock Trading: Conclusion
So, which is better – Forex trading or stock trading? Of course, it is better to do what suits you. If you distinguish more about one market than another, it is advised to you to work in a familiar field – so you are more likely to become a truly successful trader.