What are the Benefits of Forex over Stock Trading?
In many ways, stock trading is considered to be the most traditional and risk-averse investment vehicle in the financial market. However, forex trading is arguably far more popular, with an estimated $5.1 trillion traded every single day through the foreign exchange.
There are numerous reasons for this, of course, with the forex market’s natural volatility and liquidity providing investors with an opportunity to profit even in a depreciating climate.
However, there’s more to the popularity of forex trading than initially meets the eye, with investors able to leverage several advantages through this channel. Here are some of the most prominent:
1. The Number of Trading Options
When entering the stock markets, there’s a vast myriad of options and indices that can contribute to your portfolio.
While this creates an opportunity for seasoned investors, however, it can overwhelm beginners and make it hard for them to make informed trading decisions.
In contrast, forex traders have a limited range of options to invest in, with a core number of major currencies and a handful of minors available. Within this number, it’s major currencies like the pound and the U.S. Dollar that dominate the market, while fiat currencies of this type also tend to trade within relatively predictable ranges over time.
This makes it far easier for traders to make informed selections from the outset, as they gradually look to scale their portfolio and earn incremental profits as they continue to learn and hone their craft.
2. Access a 24-hour Marketplace
The forex market is one of the few global entities available to investors, and one that’s accessible across three separate trading sessions.
These cover recurring 24-hour periods, while taking in major stock exchanges in North America, Europe and the Asia-Pacific region.
As a result, the forex market is always open for business, making it possible to process real-time trades and adjust your day-trading strategy at any given time. Contemporary trading platforms like Oanda have also simplified the process of connecting with real-time markets, regardless of your geographical location or preferred currencies.
This represents a significant advantage for traders, particularly those who invest on a part-time bases and need to combine their activities with a 9-5 day job.
3. Access Better Leverage and Margin
Currency is a derivative asset, and one that can be traded successfully without requiring investors to assume ownership of an underlying financial instrument.
As a result of this, forex traders are able to speculate on margin, meaning that they can profit even in instances where the value of a specific currency depreciates.
This affords investors tremendous leverage in their trading, which in turn translates into potentially sizeable profits from relatively small commitments. Of course, there remains the potential to lose more than your initial investment with this type of arrangement, but there’s no doubt that traders can profit if they leverage market knowledge and insight.
While modern investment vehicles also enable individuals to trade selected stock options on margin, equity and dividend trading typically require you to assume ownership of the relevant company shares.