Forex vs Stocks: Why trade Forex Wins
In the complex world of financial market, it is possible to trade virtually anything. If you like a good cup of orange juice every morning, you can trade it. You can trade complex derivatives like weather, lumber, grains like corn and soybeans, ETFs, bonds, and stocks. You can also trade currencies. This article explains why currencies are better than the other assets.
For beginners, forex trading is a process in which you exchange one currency for another. For example, if you have $100 and are travelling to a country A, where the exchange rate for one dollar is A20, you will have A2000. When coming back to your country, you decide to exchange the A currencies to US dollars but the exchange rate has fallen to 15, you will have $133. Therefore, since currencies change every day, you can easily make money by buying and selling them.
See also How to Trade Forex
Forex Market is Open 24 Hours Every Day
Stocks trade for a short period of the day. In the US, they trade between 9am and 4pm. This means that you can only make money for a limited amount of time every day. Forex on the other hand is usually open for 24 hours every weekday. This is simply because forex is traded in the major financial centers such as Tokyo, Shanghai, Hong Kong, Australia, and London. Since these cities have different time zones, it enables the market to be opened every day Monday to Friday, even during public holidays.
Liquidity is very important for you as an investor. For example, if you are a real estate developer, you can build a good house but lack a customer to buy it. This happens because the real estate is not very liquid. On the other hand, forex is very liquid, meaning that you can buy a currency pair now and sell it in the next minute. This is because every day, currencies worth more than $5.3 trillion are exchanged.
Most companies that offer forex trading like Day Trade The World also offer leverage. A leverage is a type of credit advanced to a customer to invest. For example, assume that the stock of company A is trading at $5 and you have $1000 to invest. The maximum amount of shares you can buy are 200. Therefore, if the stock price rises to $8, you will have $1600. This is a profit of $600. If on the other hand someone loaned you another $1000 to invest, your profit would be $1600. Similarly, most brokers advance you this money for you to maximize the profits.
If you invest in a company, there is only a limited amount of data you will get every day. In forex on the other hand, the data is usually released on a daily basis. For example, the US can release jobs numbers today and Australia will release its manufacturing data the following day. This data can help you a lot make a good decision on whether to buy or short a currency.
Many countries have restrictions on who can buy stocks. For example, only people in the US can buy US stocks. Currencies on the other hand can be traded from most countries.
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