FOREX: Is Currency Trading Better Than the Stock Market?

The foreign exchange market, better known as forex, is the decentralized trading of international currencies. The foreign exchange market is based on the varying exchange rates due to international economic trends, especially between eight main currencies. Financial centers around the world serve as anchors for this trade and allow companies in different countries to buy and sell to each other, despite the fact that their incomes are in different currencies, by trading currencies this way. Forex also allows investors to directly speculate on the changing relative values of foreign currencies by buying and selling various currencies based on market values.

Some investors use currency trading as a substitute for trading in the stock market. For one, trading in the foreign exchange market can be cheaper than trading stocks, especially when you first start out. You can open a forex account on as little as two hundred and fifty dollars, though starting with at least one thousand dollars is more advisable. But even this increased amount is still cheaper than starting to trade on the stock market generally is, as you usually need several thousand dollars to buy stocks to trade.

Another benefit about forex trading instead of stock market trading is that forex brokers don’t make profits in the same way that stock market brokers do. Stock brokers deduct a commission off of your profits, but forex brokers make profits by setting a difference between the price at which they buy money and the price at which they sell it. Because of this, you get 100% of whatever profit you make because there aren’t any brokers taking commission off it.

Forex trading is also much faster than trading on the stock market. When trading on the stock market, a common rule is to not buy anything you don’t want to keep for ten years. In many cases, investors do end up keeping stocks for at least ten years. While there are shorter sales on stocks, they’re generally frowned upon as not being a desirable way to trade. In forex, on the other hand, it’s possible to open a trade, make money, and close the trade in the span of one day. There’s much less long term commitments on trades.

Many people also contend that the currency trading is safer than trading on the stock market. One reason for this is that the foreign exchange market is so huge that no one entity can control its prices or trade. To contextualize this a little, consider that approximately 200 billion dollars are traded every day in the stock exchange. On the other hand, on the foreign exchange market, 2 trillion dollars are traded every day. Because forex is ten times bigger than the stock exchange, it tends to be more liquid, more stable, and more predictable.

Forex trading can also be easier than stock trading. Again, trends and patterns in the forex market are more stable and more predictable than trends in the stock market due to forex’s increased liquidity. It’s also easier because it’s easier to access. Because investors trade on forex all over the world, the forex market is open 24 hours a day five days a week, because when one country’s market is closing, another is opening. You can also access the market from your computer at websites like fxcm.com.

The other piece that makes forex trading easier is that you don’t have to keep track of as much. In the stock market, you have to keep track of 3,500 stocks in NASDAQ or 4,500 on the New York Stock Exchange, all with their own sectors, news, and variables. On the other hand, in forex trading, there are only eight major currencies to keep track of relative to each other: the U.S. dollar, the Canadian dollar, the Australian dollar, the New Zealand dollar, the Euro, the Swiss franc, the British pound, and the Japanese yen. These are the major players in the forex market. This also means that the external effects on the market will be less. In the stock exchange, elements from the thousands of different stocks and their companies, markets, and regions will all affect the market. In forex, only the important economic and financial news of the countries whose currencies you’re trading will affect the trades.

Many investors find forex to be a good alternative to the stock exchange because of its cost, timeline, stability, and relative simplicity. However, trading on forex isn’t right for everyone. Like the stock exchange, there is a certain measure of risk inherent in trading foreign currencies, and despite the increased liquidity and predictability of the market, it is still very possible to lose investments. Investing comes down most to what you’re comfortable with and what market you know the best—forex isn’t always the better choice. However, if you’re seeking to diversify your portfolio, try something new, or find an alternative to trading on the stock market, trading on forex may be a good way to find what you’re looking for.