People new to trading often wonder which trading market – forex or stock – is more profitable. As a seasoned trader, I would say that both markets are profitable but equally risky. However, I’m more tilted towards the forex market because it offers more and quicker opportunities to make money.
One of the reasons for forex trading is that it allows you a diversify your portfolio. For instance, I can trade commodities, currency pairs, or even metals. But that is not the only reason. I’ll explain in detail why forex trading is much better than stock trading. So, let’s start!
More Dynamic:
The forex market is more volatile as compared to the stock market. Generally, more volatility indicates high market movement, which is quite risky, but at the same time, it offers more opportunities to catch those swings and make a profit. According to several reports, the forex market has a daily trading volume of $7.5 trillion.
On the other hand, stock markets are less volatile because most stock traders take long-term trades. They do not buy or sell the company’s stocks every day and wait for the perfect opportunity. However, it does not imply that you cannot make money from the stock market. But you may have to wait for weeks, or even months to make significant profits that can be made in forex trading.
As I mentioned, more volatility also translates to more risk, especially for beginners in forex traders. It’s because the market’s volatility can move in any direction, at any time. And if forex traders aren’t at their heels while trading, then the forex market may easily liquidate their accounts.
While I would never suggest you trade without learning important forex market concepts first, it’s best to have a reliable internet connection at your disposal. Even when you’re learning and applying forex trading concepts on a demo account, don’t do it without a swift connection.
It’s because the forex market can change directions at any moment, and you don’t want to miss out on the perfect trade opportunity. Or, to close trade when you’re suffering losses.
Speaking from experience, I washed my account a few times because I couldn’t close my trades on time due to a spotty internet connection. However, ever since I subscribed to Spectrum, I have never faced losses because of it. So, if you’re looking for a reliable connection, do reach out to Spectrum Customer Service to learn more about their plans.
Increased Availability:
While the stock market has limited operability, the forex market is open 24/7 on weekdays.
The stock market has limited operability as it is only open during the business hours of a respective country. On the flip side, the forex market operates 24/7 on weekdays and is closed on the weekends.
A major reason that contributes to more volatility in the forex market is the availability. There are four sessions in the forex market: Sydney, Tokyo, London, and New York session. The sessions start with Sydney and end with the New York session.
However, as soon as one session is about to close, the new session starts. So, this overlapping provides more trading opportunities and better volatility to forex traders around the clock.
Low Trading Fees:
A broker provides the platform to access the forex market. The cost of trading in the forex market varies from broker to broker. Forex brokers make money via:
- Spreads – The difference between the asking and bidding price of a currency pair. It varies from one currency pair to another. Forex brokers make money via this price difference.
- Swap Fees – Brokers charge a fee if you don’t close your trade by the end of the trading day.
Forex traders can easily find brokers like Exness or IC Markets, which offer the lowest to zero spread accounts. And if a forex trader closes their trades before the day’s end, they may save on swap fees as well. This is why the cost of trading in forex is low.
On the other hand, stock brokers may make money from spreads. But, unlike forex trading, stock trading involves commissions that stock traders have to pay and depend on the volume of the trade.
Greater Leverage:
Although forex and stock trading both offer leverage, forex traders often find greater ratios. That being said, like volatility, leverage is a double-edged sword. It’s because more leverage lets you hold high-price positions with less equity. While this surely increases your chance to make more money, you may liquidate your account in seconds if your trade goes wrong.
On the bright side, if you’ve studied the market enough, leverage is no less than a boon. For instance, if you have an equity of $10 in your account and your leverage is set at 1:100, you can easily hold a trade up to $1000. And it’s a basic rule of trading that the more you invest, the more gains you can get from the market.
In contrast, stock markets do not offer such leverage. One major reason is that stock traders do not opt for it. They mostly go for long-term investments for which they do not need a high leverage. Instead, they stick to the minimum leverage offered to them by the broker and hold their trades with low risk.
Key Takeaways:
- Forex trading offers more volume which equates to more opportunities to earn profit. Stock markets have less volatility which makes them less risky but less profitable as well.
- Forex markets are open 24/7 on weekdays and it is a major reason why these markets are highly volatile. Stock markets operate during business hours in a respective country.
- The cost of forex trading is low as a broker may only charge a spread or swap fee. Stock market brokers often charge spread fees and a small commission on money earned in the stock market.
- Forex brokers offer more leverage which allows forex traders to hold more trades. However, it can be equally disadvantageous if a forex trader suffers losses.
