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. Indeed, this is the most globally traded asset every day, so it may be worth considering.
Why should you trade forex? This article explains why currencies are better than the other assets (and in what area).
Trading Forex vs 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 A*20, you will have A*2000.
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.
Forex is known for several advantages, including high liquidity, longer trading hours, low transaction costs, and the ability to use leverage in the industry.
Trading stocks is different from forex. For one, stocks refer to shares of companies like Amazon, Apple, and Microsoft. When you own a share of a company, you own a small part of it, meaning that you can even receive dividends. Trading stocks happens within a relatively small window every weekday.
The other popular assets that you can day trade are cryptocurrencies, which are digital currencies built in the blockchain.
Examples of popular cryptocurrencies are Bitcoin, Ethereum, and BNB coin among others. The benefit of these coins is that they are available on a 24/7 basis. However, they are high-risk assets that can be highly illiquid.
Why should you choose 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.
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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 popular assets like stocks, commodities, and cryptocurrencies have varying degree of liquidity. However, apart from popular stocks like Apple and Microsoft, many thinly traded stocks tends to have thin liquidity. The same is true with some commodities like lithium, nickel, and wheat.
Therefore, because of the overall volume in the forex industry, we believe that they have more liquidity than other assets.
However, in all this, you simply need to evaluate the assets you want to trade and their liquidity. That’s because even in forex, there are some thinly-traded pairs (exotic pairs) that have limited liquidity.
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 (and it has some risks).
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.
That said, it is impossible to stress enough the importance of practicing and taking the time to adapt to these capital flows.
On websites like these, you can get multiple options to start your practice without risking any capital (You can also do this on our demo platform). You will begin to gather the self-confidence that is vital for good results.
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.
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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.
No market manipulation
Market manipulation happens when a group of people works to cheat the market. One way that this happens is through pump and dump schemes. Another way is when well-known short-sellers publish reports, which pushes stock prices much lower.
Market manipulation is also common in other assets like cryptocurrencies. Today, anyone can create a crypto token, pump it, and then sell at the top. We also see market manipulation in the commodities market.
Because of its nature, it is almost impossible to manipulate the forex market. For one, forex moves because of events that are out of the control of most people.
In this article, we have looked at some of the top reasons why trading forex is better than other assets. However, some people prefer other assets like stocks and commodities. It all depends on your preference, skills, and your trading style.
External Useful Resources
- Forex vs stocks: which should you trade? - IG