Forex or stocks: which is the best market to trade?

Learn about the differences between the stock and currency markets and which market better suits your trading profile. Discover the different trading terms, available leverage and liquidity.

Forex or stocks: which is the best market to trade?

The stock market may be one of the most popular markets commonly referenced across mainstream media, but the truth is that the forex market is undoubtedly much more profitable, enjoys higher daily trading volume and can be traded around the clock and not only during the working hours of a local exchange.

 

Liquidity

Liquidity is what drives lower trading costs and faster execution times and therefore is a highly desirable factor in deciding which market is more favourable to invest in.

If an asset is actively traded by a large number of investors, the competition between the buyers and sellers results in highly cost-effective transactions.

Due to the large number of participators in forex trading, the forex market is offers deep levels of liquidity at any given time. However, some stocks are also widely traded and popular with investors as is the case with brands such as Apple, Microsoft, Google and Amazon to name a few.

Other less notable stocks are less liquid, but so are the currencies of emerging economies. Trading the major forex pairs such as EUR/USD, GBP/USD or USD/CHF provides profitable opportunities throughout the day due to the large amount of price fluctuations that can develop after high-impact geopolitical and socio-political events.

When you open a position in EUR/USD, for example, the spread can vary from 1 to 3 pips which can range from $1 to $10 depending on your position size. Since forex traders don’t pay any other commissions to open a trade, trading an active market which enjoys movements upwards of 100 pips a day, can quickly cover the cost of the spread while yielding high returns.

 

Leverage

Trading forex also offers higher leverage ratios to traders which simply isn’t available to stock traders.

Leverage is invaluable to online trading because it allows you to hold large positions with only a fraction of the total cost. Thereby offering higher profit potential with a small investment amount. However, leverage also increases downside risks as well and therefore, traders should ensure that they understand how leverage can affect their results and employ strict risk management rules when trading.

 

Trading hours

Perhaps one of the most advantageous aspects of the forex market is that currencies are available for trading 24 hours a day (besides the weekend). As long as there are enough traders active in the market, you will be able to trade.

The stock market, however, is limited to the working hours of a stock exchange and therefore when the stock exchange is closed, you won’t e able to trade.

Since you can trade forex online at any given time and there are hundreds of active currency pairs available, the forex market offers one of the most widely accessible avenues for investing and growing your income.

As long as you have a modern device supported by the trading platform and a stable internet connection, you will be able to trade any time you are available – even on your smartphone during your commute.

 

Diverse range of tradeable assets

While the forex market mainly deals with currencies or currency pairs, a forex trading account with any major forex broker actually provides you with access to a diverse range of tradable markets.

CM Trading clients can trade currency pairs, stocks, indices, commodities and even cryptocurrencies with powerful leverage, which means that you only need to invest a small amount while still enjoying increased profit potential and all from the comfort of your own home.

Opening a CM Trading account gives you access to a variety of financial instruments at the best trading conditions available.

•         Currency pairs: EUR/USD, GBP/USD and USD/ZAR

•         Popular stocks: Amazon, Facebook, Google and Tesla

•         Precious metals: Gold, silver and palladium

•         Commodities: Oil, coffee and sugar

•         Cryptocurrencies: Bitcoin, Ethereum, Litecoin and Ripple

 

As you can see, a forex trading account also allows you to trade stocks and indices while still enjoying equally favourable trading conditions available to currency traders.

For example, trading stocks, or stock CFDs in this case, through a forex broker allows you to both buy or sell a stock in order to be able to profit even if the stock is market is crashing.

In short, when a currency pair, stock or commodity is performing well, you should open a buy position to take advantage of the price increase. On the other hand, when the market is losing movement and prices are going down, you can open a sell position and still profit from the movement.

Trading the financial markets is not just for professional traders of financial institutions. CM Trading will provide you with all the guidance and training required to trade profitably regardless of your trading background or skill level.

 

Open a free account below to discover how CM Trading’s experts can help you reach your profit targets in 2020.

Register now!

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