Trading Stock Online: Better than Forex?
With global trade tensions rising, Brexit uncertainty and online stocks being as volatile as ever, investors are on the lookout for short-term opportunities. That said, it never hurts to plan ahead and a long-term diversification adjustment for your investment portfolio should be of high priority right now. Trading stocks have always been considered a more consistent approach of investment compared to forex despite the healthy amount of volatility in both markets.
Each market presents different opportunities for investors, but both have their shortcomings. If you need help deciding where and how to invest your money effectively; keep reading to find out which market better aligns with your requirements and objectives. Both markets have their own unique characteristics and temperament. As such, prospective investors should seek to educate themselves as much as they can before jumping in headfirst.
However, it’s also worth to note that forex and stocks both can be traded as speculative instruments. Meaning you don’t need to buy and hold US Dollars or Apple stocks in hopes that their value will appreciate in the future so you can eventually cash out to realize your profits. Trading stocks or forex as derivatives allows you to speculate on price fluctuations without owning the underlying instruments.
Let’s have a look at why some investors prefer online stock trading:
- Stable investment
- Consistent market sentiment
- Long-term capital growth
- Centralized and transparent
- Highly regulated
The common saying goes “stocks trend and forex ranges”. That’s because the stock market is more robust and can enjoy bullish trends for long periods of time regardless of the surrounding political climate. That doesn’t make it exempt from manipulation by a company’s management or stakeholders, however.
Also, when you are dealing with online stocks, it’s best if you take things slow. The stock market isn’t as fast-moving as the currency markets and therefore you can take the time to analyze the fundamentals before making your decision. Obviously, you should aim to buy low and sell high but as long as you can identify a trend with some momentum – chances are you will still be able to make some profit.
The stock market also is quite more popular and established in business and finance even though it could never hope to reach the daily trading volume of the forex market. Everyone’s heard and has a basic understanding of how the stock market works but the same can’t be said for forex. This can make it appear more trustworthy and safer to beginner traders and investors as well.
Now, let’s see some of the features of the forex market:
- Low entry requirements
- High volatility
- Short-term opportunities
- Fast transactions
- Steep learning curve
The forex market is quite more involved than trading stocks and it takes the deep experience with technical and fundamental analysis to be successful. There are much higher opportunities for profit compared to the stock market, but the risk is much higher as well. Leverage or margin trading can be applied to both markets, but forex is quite a bit more volatile as currency pairs are highly affected by geopolitical news and events and financial institution announcements.
Traders do like this volatility, however, since it means they can find potentially profitable trades in a short amount of time due to how fast the market moves. It’s quite difficult to predict and ride trends in forex because the rates usually trade in a sideways pattern going up and down with a few sudden spikes in-between.
It’s great that forex trading can be enjoyed by everyone since the minimum deposit requirements are very low but there are a lot of concerns voiced about the industry and financial watchdogs are having a hard time balancing regulations that protect investors without taking away most of their benefits that the industry affords.
Both markets have their pros and cons, but each can also be adapted to the needs of the individual trader. There are also services that can aid traders and investors manage their investment better, as well as educate them in the industry’s best practices.
If you want to fast-track your investment towards early retirement, trading stocks might not be the right market for you, however. The entry requirements are substantially higher than forex and the opportunities for short-term profits are few and far between. Forex trading also provides better pricing since there aren’t any commissions and you only need to pay the spread which is the difference between the buying and selling price for the currency pair of your choosing.
On the other hand, if you meet the capital requirements and want to opt for a more stable investment with substantially lower risk, trading stock online may prove to be the better choice. If you feel overwhelmed by the number of stocks that are available, you can also choose to trade indices like the S&P 500 and NASDAQ. Indices are a combination of different stocks in the same industry or country that are pooled together. Indices can help you save and diversify your money and therefore are very popular among stock traders.