Why Currency Trading Beats Stock Trading in 2021?

Why Currency Trading Beats Stock Trading in 2021? fxreviewtrading.com/articles/why-currency-trading-beats-stock-trading
As we have plenty of options around us for long-term investment or short-term trading, it
can be overwhelming for many of us. Both currency, aka Forex market and the stock
market, are the most popular markets in the world for trading. The Forex market is the
largest trading market with a daily exchange of more than $6 trillion. And more than $1
trillion is traded daily in the stock market. You may wonder which one is more profitable?
Why Currency Trading Beats Stock Trading?
Some traders think that stock trading is more profitable based on their experience and
accessibility of the markets. On the other side, currency trading is also gaining
mainstream attention, and forex traders think it is more profitable than any other market
in the world because of high volatility and trade volume.
The debate may go longer on the efficacy and profitability of both markets as stock and
forex markets are the most popular ones and offer a great variety of trading instruments.
What is forex trading?
Forex or foreign exchange involves exchanging currencies not only for trading purposes
but also for travelling abroad, cross-border transportation, and several other reasons. For
example, there are popular currency pairs such as EUR/USD, GBP/USD, JPY/AUD and
more. These currency pairs are traded across the world with the combined exchange rate.
Benefits of Forex Trading
Forex trading is one of the most basic forms of trading in which you do not need a high
initial investment. Forex market is a decentralised marketplace that is open 24 hours a
day. The market is the network of millions of traders around the globe. It is a highly
volatile market where you can trade one currency against another. Forex traders use an
over-the-counter (OTC) approach for trading currencies.
Several factors affect the price of currency pairs, including political shifts, diplomatic
relations, the overall state of the economy, etc.
What is stock trading?
Stock trading is the process of trading shares of public listed companies on a stock
exchange. A stock you own determines the percentage of your ownership in that particular
company. Unlike a foreign exchange, the stock exchange is the physical market where
stocks are traded.
There are various popular stock exchanges worldwide, including NASDAQ, the Shanghai
stock exchange, the London stock exchange, NSE India, etc. The price of stocks depends
on multiple factors covering economic performance, market sentiment, change in leader’s
position, etc.
Why Currency Trading Beats Stock Trading: Key differences
There are various key differences between forex and stock trading in terms of trading
hours, liquidity, leverage, volatility and trade volume. These differences will let you
understand why currency trading beats stock trading. Both markets can be lucrative and
involve risks. But it depends on you how well you can balance out both these components
in your trading journey.
On the basis of trading hours
You can buy or sell stocks in a limited time in stock trading. There is also an after-hours
trading market for stock trading, but trade size is much smaller in those hours, plus you
cannot take the benefit of high liquidity in those hours. In addition, there are several
other reasons that the after-hours trading market is not as popular as regular trading
hours.
You can do your bit by taking the best out of the regular trading hours in the stock market
because it’s not easy to trade 24/5 in the stock market. Stock exchanges follow their own
rules, and stock exchanges around the world have different trading hours. Limited trading
hours also limit the options for investors. In addition, stock markets are closed on public
holidays and weekends.
On the other hand, the forex market offers you flexible trading hours, and the online
market has no fixed location, and this is one significant advantage that there is no gap of
trading hours in 5 days a week. Traders can take advantage of this in a lot of ways. All
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participants trade in the forex market from different corners of the world. When the
trading hours are flexible, it will be easier for you to perform the technical analysis.
You can make better decisions as you can time your trades any 24/5 and monitor the
market whenever you get a free minute. Forex currency pairs are traded through the
interbank market. Because of the 24/5 virtual access of the forex market, the forex market
is gaining mainstream adoption these days.
On the basis of trading volume
More than 50 major stock exchanges across the world have a valuation of more than $69
trillion. The market is big enough for the daily participation of an average individual. As
the new age of inventors intensifies trading with an aggressive approach, the market is
expected to touch more than $100 trillion soon.
Stock exchanges in Asia and North America are the greatest contribution to this industry.
Asia is contributing more than $23 trillion, and in North America, more than $28 trillion
value of shares have been traded. The United States stock market holds a significant part
of the value.
On the other hand, the forex market has more than $6 trillion daily trading volume.
Because of the large trading volume, it is very easy to participate in the forex market with
a minimum initial investment. You can prefer your price while trading forex currency
pairs. You can execute your trades in the forex market because of the large trading
volume.
Traders should be aware of the fact that they can make the best out of their investments in
foreign exchange as the massive amount of money is traded daily. Moreover, when you get
exposure to the high trade frequency, your chances to enter and exit the market also
increases. Therefore, it would be much easier for you to make a better decision because of
the high market intensity in foreign exchange.
More than 80% of currencies are traded against the dollar. Thus, even an average investor
can make regular income in the forex market due to the large size of the market.
On the basis of Liquidity
High trading volume results in increased liquidity. The forex market has higher liquidity
as compared to the stock market. In foreign exchange, there is a whole international
market because of which the higher trade volume is distributed equally, and every
investor or trader can take advantage of that.
On the other hand, in the stock market, every stock has its trade volume, and the stock
market does not act as a whole, which means trade volume is uneven. As a result, some
stocks have high trade volume, and some have low, making the stock market vulnerable to
lower liquidity. For example, blue-chip stocks like Apple, Oracle, Facebook, Tesla have
higher trade volumes than the small and mid-cap companies.
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In the stock market, the low trading volume makes it difficult for traders to participate.
Still, you can have at least a decent amount of trades in the stock market. Liquidity does
not affect the accessibility of the shares and trading. Traders hedge against the currency
pairs in foreign exchange to reduce the potential losses, and it’s an added advantage for
traders to make the best out of it because of high liquidity.
The Forex market is the most liquid market in the world, which makes it easier for traders
to participate. You can trade in the forex market with many conveniences as there are a
handful of currencies available. It is likely to be more aware of the fact that more
currencies lead to more trading as the volume and size are high in the foreign exchange.
On the basis of leverage
In stock trading, minimal leverage is offered. Many brokers keep targeting you by fake
promises of providing higher leverage of 1:150 or more, but this can not be true. The
maximum leverage on stock cannot be offered more than 1:4. But there are genuine
brokers like ABinvesting. They do not play with and make false promises. ABinvesting
provides the highest possible leverage on stocks and is well regulated and known for its
services.
1:4 leverage for stock trading is only offered to those short-term traders who close their
position before the end of the trading day and maintains the minimum trading balance of
$25,000. But this figure is not fixed for every stock exchange and changes according to
the market conditions. In addition, marketing trends drive you to take the benefit of the
leverage to gain higher returns.
Leverage for forex trading depends on the brokerage firm, the maximum leverage limit for
forex trading is typically up to 1:500. You can access leverage up to 1:500 with
ABinvesting on popular currency pairs. For that, you need to open a pro account with the
broker. The added advantage in forex trading is that there are no qualification
requirements for accessing leverage like the stock market.
Leverage is one of those components of trading which are highly lucrative for traders. The
tool has the potential to multiply your returns more than even ten times. But one also
should be aware of the risks associated with it. Higher the potential returns, the higher
the risks.
On the basis of Volatility
The markets with high volatility have quick price changes in asset’s value, whereas low
volatility leads to gradual price changes of the underlying asset. Values of currency pairs
fluctuate with a high intensity as the vast number of traders and business participates in
the market. This indicates that a large trading volume results in higher volatility.
Now we can conclude that all these components are interrelated. Large volume leads to
rising in both liquidity and volatility.
On the other hand, the stock market has lower volatility than the forex market because the
price patterns are much more stable in the stock market. Another reason for stability in
the prices of stocks is low trading volume.
However, both stability and volatility can be beneficial or non-beneficial depends on the
individual and the market conditions.
Why Currency Trading Beats Stock Trading?
The components or factors that we have discussed above are the key reasons why the
currency market took over the stock market. The large trading volume, highly liquid
currency pairs, high volatility, flexible leverage and trading hours attract traders
worldwide. In addition, long-term investors prefer to stick with stock trading because of
the stable price patterns.
On the other hand, short-term traders like to gain on the small price movements, which
can be seen in both stocks and currency pairs. But there is a high number of participants
in the forex market because it seems more lucrative.
What should you choose?
It would be good for you if you choose what works best for you. Currency trading beats
stock trading does not mean that the currency market is better than the stock market, or
you can gain more through foreign exchange than investing in stocks. Both markets are
unique and are specialised in different terms. It depends on the trader on s/he can make
the best out of it.
But a new generation of investors or traders are a bit impatient, and most of them want to
make quick profits. Forex currency pairs are suitable for short-term traders due to high
volatility and trade volume, so they are inclined towards forex trading. However, young
traders must exercise caution. It would be good for them if they do not get carried away by
short-term gains.
Why Currency Trading Beats Stock Trading: Final Words
Whether you are trading in the stock market or foreign exchange, you should also be
aware of the associated risks. The currency market is taking over the stock market does
not imply that you should stick to the forex market. Choose what works best for you
without looking at the trend or other traders. Following market sentiment mindlessly can
cost you both money and mental peace.
Analyse both the markets thoroughly and make an informed decision. Risks are inevitable
whether you go with forex or stocks. Keeping that in mind and the factors affecting the
market, you should start your trading journey.