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Forex vs. Stock Trading
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One of the biggest reasons some traders prefer the forex to the stock market is forex leverage. Below, we compare the differences between stock trading and forex trading.
In stock trading, you can normally trade with a maximum of 2:1 leverage. There are also some qualifying requirements before you can do this. Not every investor is approved for a margin account, which is what you need to leverage in the stock market.
Forex trading is very different. To qualify to trade with leverage, you simply open a forex trading account. There are no qualifying requirements. In the United States, you’re limited to 50:1 leverage, but in other countries, you can leverage as much as 200:1.
When you trade stocks, you are buying shares of companies that cost anywhere from a few dollars to hundreds of dollars. Market price varies with supply and demand. Trading on the forex is a different world. Although the supply of a country’s currency can fluctuate, there is always a large amount of currency available to trade. In consequence, all major world currencies are highly liquid.
In currency trading, currencies are always quoted in pairs, so not only do you have to be concerned with the economic health of the country whose currency you are trading, but also with the economic health of the country you are trading against.
Your fundamental concerns also differ from one market to another. When you buy shares of Intel, your primary concern is whether the stock will increase in value— you’re less concerned with the stock prices of other companies. When you’re buying or selling on the forex, on the other hand, you have to consider the economics of two countries. Does one country have more job growth than another, or better GDP, or political prospects? A successful single trade on the forex, therefore, requires analyzing two financial entities, not one. Forex markets sometimes exhibit greater sensitivity to emerging political and economic situations in other countries; the U.S. stock market isn’t immune but is usually less sensitive to such foreign issues.
Price Sensitivity to Trade Activity
The two markets have very different price sensitivity to trade activity. Stock purchase of 10,000 shares may impact the stock price, particularly for smaller corporations with fewer shares outstanding than, for instance, giants like Apple.
In sharp contrast, forex trades of several hundred million dollars in a major currency will most likely have little—or even no—impact on the currency’s market price.
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Currency markets have greater access than stock markets. Although in the 21st century, it’s possible to trade stocks 24 hours a day, five days a week, it’s not particularly easy. Most retail investors trade through a U.S. brokerage with one major trading period daily, from 9:30 a.m. to 4:00 p.m., with a much smaller “after hours” trading market with known volatility and price issues that discourage many retail investors from using it. Forex trading, on the other hand, can be done six days a week, 24 hours a day, because there are many forex exchanges worldwide—it’s always trading time in one time zone or another.
No Bear Markets in Forex Trading
When a stock market declines, you can make money by shorting, but this imposes additional risks, one of which is that (at least in theory) you may have unlimited losses. In reality, that’s unlikely to happen—at some point; your broker will end the short position. Nevertheless, most financial advisors caution against shorting for all, and many of the most experienced investors execute parallel stop-loss and limit orders to contain this risk.
In forex trading, you can go short on a currency pair as easily as you can go long and the two positions present similar risks. No additional precautionary trades to limit losses are necessary.
Greater Freedom From Regulation
Stock trading on major exchanges has many regulations and limits; forex trading is less regulated. In some ways, the regulatory environment of the major stock exchanges imposes limits you may not welcome; it also protects you and other investors to a degree the forex does not.
It’s Your Choice
Most investors are more familiar with the stock market than with forex, and that familiarity may be comforting. The comparative freedom from regulation on the forex and its high degree of possible leveraging makes it easy to control large trades without special qualifications and with a limited amount of money. That’s the upside of the forex market, but also the downside—participation in the forex increases both investment opportunities and risk.
Investing in Forex vs. Stocks
Today’s active investors and traders have access to a growing number of trading instruments, from tried-and-true blue chip stocks to the fast-paced futures and foreign exchange (or forex) markets. Deciding which of these markets to trade can be complicated, and many factors need to be considered in order to make the best choice.
The most important element may be the trader’s or investor’s risk tolerance and trading style. For example, buy-and-hold investors are often more suited to participating in the stock market, while short-term traders—including swing, day and scalp traders—may prefer forex whose price volatility is more pronounced.
- Deciding whether to invest in the foreign exchange markets (forex) or stocks/stock indexes depends on he trader’s or investor’s risk tolerance and trading style.
- Specific elements to compare include volatility, leverage, and market trading hours.
- Broadly speaking, the equities markets—blue chip stocks and index funds—suit a buy-and-hold investor, while active traders often prefer the fast-moving forex.
Comparing Forex to Blue Chip Stocks
The foreign exchange market (aka forex) is the world’s largest financial market, accounting for more than $6.6 trillion in average traded value each day in 2020, according to the most recent Bank for International Settlements Triennial Central Bank Survey. Many traders are attracted to the forex market because of its high liquidity, around-the-clock trading and the amount of leverage that is afforded to participants.
Blue chips, on the other hand, are stocks of well-established and financially sound companies. These equities are generally able to operate profitably during challenging economic conditions and have a history of paying dividends. Blue chip stocks are generally considered to be less volatile than many other investments and are often used to provide steady growth potential to investors’ portfolios.
So what would be the key differences to consider when comparing a forex investment with one in blue chips?
- Volatility. This is a measure of short-term price fluctuations. While some traders, particularly short-term and day traders, rely on volatility in order to profit from quick price swings in the market, other traders are more comfortable with less volatile and less risky investments. As such, many short-term traders are attracted to the forex markets, while buy-and-hold investors may prefer the stability offered by blue chips.
- Leverage. A second consideration is leverage. In the United States, investors generally have access to 2:1 leverage for stocks. The forex market offers a substantially higher leverage of up to 50:1, and in parts of the world even higher leverage is available. Is all this leverage a good thing? Not necessarily. While it certainly provides the springboard to build equity with a very small investment—forex accounts can be opened with as little as $100—leverage can just as easily destroy a trading account.
- Trading Hours. Yet another consideration in choosing a trading instrument is the time period that each is traded. Trading sessions for stocks are limited to exchange hours, generally 9:30 A.M. to 4pm Eastern Standard Time (EST), Monday through Friday with the exception of market holidays. The forex market, on the other hand, remains active round-the-clock from 5 P.M. EST Sunday, through 5 P.M. EST Friday, opening in Sydney, then traveling around the world to Tokyo, London and New York. The flexibility to trade during U.S., Asian and European markets—with good liquidity virtually any time of day—is an added bonus to traders whose schedules would otherwise limit their trading activity.
Should You Trade Forex Or Stocks?
Comparing Forex to Indexes
Stock market indexes are a combination of stocks, with some sort of element—either fundamental or financial—which can be used as a benchmark for a particular sector or the broad market. In the U.S. financial markets, major indexes include the Dow Jones Industrial Average (DJIA), the Nasdaq Composite Index, the Standard & Poor’s 500 Index (S&P 500), and the Russell 2000. The indexes provide traders and investors with an important method of gauging the movement of the overall market.
A range of products provide traders and investors broad market exposure through stock market indexes. Exchange-traded funds (ETFs) based on stock market indexes, such as the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ, which tracks the Nasdaq 100 Index, are widely traded.
Stock index futures and e-mini index futures are other popular instruments based on the underlying indexes. The e-minis boast strong liquidity and have become favorites among short-term traders because of favorable average daily price ranges. In addition, the contract size is much more affordable than the full-sized stock index futures contracts. The e-minis, including the e-mini S&P 500, the e-mini Nasdaq 100, the e-mini Russell 2000, and the mini-sized Dow Futures are traded around the clock on all-electronic, transparent networks.
So what would be the key differences to consider when comparing a forex investment with one that plays an index?
- Volatility. The volatility and liquidity of the e-mini contracts are enjoyed by the many short-term traders who participate in stock market indexes. Let’s say that the major equity index futures trade at an average daily notional value (the total value of a leveraged position’s assets) of $145 billion, exceeding the combined traded dollar volume of the underlying 500 stocks. The average daily range in price movement of the e-mini contracts affords great opportunity for profiting from short-term market moves. While the average daily traded value pales in comparison to that of the forex markets, the e-minis provide many of the same perks that are available to forex traders, including reliable liquidity, daily average price movement quotes that are conducive to short-term profits, and trading outside of regular U.S. market hours.
- Leverage. Futures traders can use large amounts of leverage similar to that available to forex traders. With futures, the leverage is referred to as margin, a mandatory deposit that can be used by a broker to cover account losses. Minimum margin requirements are set by the exchanges where the contracts are traded, and can be as little as 5% of the contract’s value. Brokers may choose to require higher margin amounts. Like forex, then, futures traders have the ability to trade in large position sizes with a small investment, creating the opportunity to enjoy huge gains—or suffer devastating losses.
- Trading hours. While trading does exist nearly around the clock for the electronically traded e-minis (trading ceases for about an hour a day to enable institutional investors to value their positions), the volume may be lower than the forex market, and liquidity during off-market hours could be a concern depending on the particular contract and time of day.
Tax Treatment: Forex Vs. Equities
These various trading instruments are treated differently at tax time. Short-term gains on futures contracts, for example, may be eligible for lower tax rates than short-term gains on stocks. In addition, active traders may be eligible to choose the mark-to-market (MTM) status for IRS purposes, which allows deductions for trading-related expenses, such as platform fees or education.
In order to claim MTM status, the IRS expects trading to be the individual’s primary business. IRS Publication 550 and Revenue Procedure 99-17 cover the basic guidelines on how to properly qualify as a trader for tax purposes. Traders and investors alike should seek the advice and expertise of a qualified accountant or other tax specialist to most favorably manage investment activities and related tax liabilities, especially since trading forex can make for a confusing time organizing your taxes.
The Bottom Line
The internet and electronic trading have opened the doors to active traders and investors around the world to participate in a growing variety of markets. The decision to trade stocks, forex or futures contracts is often based on risk tolerance, account size, and convenience.
If an active trader is not available during regular market hours to enter, exit or properly manage trades, stocks are not the best option. However, if an investor’s market strategy is to buy and hold for the long term, generating steady growth and earning dividends, stocks are a practical choice. The instrument(s) a trader or investor selects should be based on which is the best fit of strategies, goals, and risk tolerance.
Perdagangan Valas Vs Stock Trading
Perdagangan Forex Vs Perdagangan Saham – Mengapa Forex Kutu Dengan Baik. Forex vs Saham.
Toleransi risiko, kenyamanan, dan ukuran akun adalah faktor utama yang memengaruhi keputusan Anda tentang apakah Anda harus memperdagangkan Forex vs Saham. Jika Anda tidak akan tersedia untuk partisipasi aktif selama jam perdagangan aktif, maka pasar saham jelas bukan untuk Anda. Meskipun mirip dalam mekanisme perdagangan untuk industri perdagangan saham, perdagangan Forex dapat menjadi pilihan terbaik Anda untuk fitur yang membedakan Forex dari saham seperti yang dijelaskan di bawah ini.
Persamaan antara Forex vs Stocks Trading Berakhir dengan Faktor-faktor ini
Harga penawaran dan harga permintaan berubah selamanya di pasar saham dan mata uang. Jenis pesanan yang ditempatkan adalah sama.
Sebagai aturan umum, fluktuasi harga untuk ekuitas dan mata uang didasarkan pada faktor penawaran dan permintaan. Namun, kesamaannya berakhir di sini.
Berikut adalah Perbedaan yang Membuat Tick Trading Forex
Pilihan Perdagangan Alternatif: Ada ribuan alternatif di pasar perdagangan saham.
Namun, di pasar perdagangan mata uang Anda harus bersaing dengan empat pasangan mata uang “utama”, tiga pasangan “komoditas”, dan mata uang “silang”.
Alternatif perdagangan di Forex mudah dikelola dan dikuasai jika dibandingkan dengan ribuan di industri saham.
Jam Pasar yang Tumpang-tindih: Anda dapat mengambil keuntungan dari jam pasar yang tumpang tindih dalam forex. Meskipun pasar forex buka 24 jam sehari, Anda harus mempertimbangkan perdagangan selama jam perdagangan lokal Sydney, Tokyo, London, atau New York atau selama jam perdagangan yang tumpang tindih.
Jam pasar lokal yang aktif atau jam yang tumpang tindih adalah ketika pasar benar-benar aktif dan harga bergerak. Ketika dua pasar dibuka pada waktu yang sama, ada jam pasar yang tumpang tindih, dan Anda memiliki volume lebih banyak, peristiwa, dan berita yang terjadi.
Ini akhirnya membuat Anda banyak indikator dan sinyal yang dapat diperdagangkan.
Perdagangan Forex Lebih Mudah Diikuti: Perdagangan Forex lebih mudah diikuti karena Anda hanya perlu mengikuti indikator fundamental dan teknis untuk delapan negara besar dalam kelas aset untuk Dolar Australia (AUD), Dolar Amerika (USD), Dolar Kanada (CAD), Dolar Selandia Baru (NZD), Yen Jepang (JPY), Pound Inggris (GBP), Franc Swiss (CHF), dan Euro (EUR) masing-masing.
Namun, ketika datang ke perdagangan saham Anda perlu memperbarui diri ke dunia lebih dari seribu produk dan daftar, yang tidak mudah jika Anda seorang pemula.
Membuka dan Menutup Posisi: Ada aturan dan peraturan ketat dalam industri perdagangan saham. Karena itu, tidak mudah membuka dan menutup posisi di industri perdagangan saham. Namun, Anda dapat membuka dan menutup posisi di pasar forex sepanjang jam 24 dalam sehari.
Keuntungan di Pasar yang Menurun: Bila pasar sedang mengalami penurunan maka sulit untuk membuat keuntungan di pasar saham. Di pasar forex, Anda bisa menghasilkan keuntungan baik saat pasar naik maupun turun.
Margin Rendah dan Leverage Tinggi di Forex: Margin rendah dan leverage yang tinggi dimungkinkan di pasar forex. Margin rendah dan fleksibel membantu Anda menghasilkan lebih banyak keuntungan di pasar perdagangan mata uang yang tidak memungkinkan di pasar saham. Leverage dapat bekerja untuk keuntungan Anda atau sebaliknya dan ini adalah di mana strategi datang untuk bermain.
Fakta bahwa investasi rendah, keuntungan tinggi dengan pergerakan harga kecil, dan jam perdagangan yang nyaman dimungkinkan di forex trading adalah alasan yang cukup untuk membuat forex tick untuk Anda bila dibandingkan dengan perdagangan saham.
Jadi kita ingin tahu apa pendapat Anda, Forex vs Stocks? mana yang akan itu untukmu? Pastikan untuk berkomentar di bawah ini.
Broker opsi biner terbaik untuk tahun 2020!