Forex Trading Vs Stock Trading – Which Is More Profitable?

Forex trading and stock trading can prove to be extremely lucrative investments. In this piece we determine the pros and cons of both.

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Forex Trading
6 min read

Forex trading vs stock trading are two highly profitable and lucrative forms of trading when executed correctly. Deciphering which one provides a better return than the two is dependent on several varying elements. Several ingredients go into making a profitable trade, and today we’re going to examine what they are and how you can utilise them yourself to decide which type of trading is best for you when it comes to trading stock vs forex.

Some of these techniques can also apply to other types of trading strategies. Having flexibility and being able to adapt the same strategy to different types of trading is also a key skill that many investors have. When we break down forex trading vs stock trading in our guide today, remember that this is a general overview of each and is not trading advice.

What Is Forex Trading vs Stock Trading

Forex trading is the buying and selling of foreign currencies, the US Dollar is the most common pairing, and it links with the majority of major currency pairs. Stock trading is focused solely on trading company stock or shares on an exchange. We will go more in-depth in the article today regarding both and see which one you prefer.

The Benefits Of Forex Trading

If you’re somebody who trades using their mobile app and consistently checks charts and analysis every 15 minutes, stock trading may be more up your street. When it comes to trading stocks, it can only be done between office hours and does not allow you the flexibility to trade outside of these hours. However, the rise of trading software which uses automated computing algorithms to trade for you has resulted in more people leaving it in the hands of the technology. 

You don’t need to look at your phone constantly to catch your trades if you know how to set take profit and stop loss orders.

However, forex trading could benefit you more than stock trading if you’re more inclined to trade outside standard office hours. If you would like more information about forex trading as a beginner, we have a specific insights page. For starters, you only have to deal with seven major currency pairs:

  • The Euro & US dollar: EUR/USD.
  • The Great British Pound & US Dollar: GBP/USD.
  • The US Dollar & Canadian Dollar: USD/CAD.
  • The US Dollar & Japanese Yen: USD/JPY.
  • The US dollar & Swiss Franc: USD/CHF.
  • The Australian Dollar & US dollar: AUD/USD.
  • The New Zealand Dollar & US dollar: NZD/USD.

When it comes to trading forex vs stock, there are over 2,500 stocks to choose from on the New York Stock Exchange. The stock exchange vs forex trading might be slightly easier to keep an eye on as less than a dozen major currency pairs make up the bulk of the market. It also might be more manageable for your personal trading preference to keep tabs on a handful of these markets compared to a large number of stocks. Also, the forex market doesn’t close. This is due to the nature of some of these pairings and the time zones involved. This could provide better avenues and more suitable hours to learn exactly how these markets operate

With forex trading vs stock market, although we have listed the seven major pairs, there are other currency pairs you can trade as well. The US Dollar remains King, and if you wanted to start your forex trading journey with dollars, you would immediately have several markets available to you.

Another important positive when it comes to forex trading vs stock is that forex markets have huge liquidity. This is due to the size of the countries where the currencies are traded. It is much more difficult to manipulate them than a company’s share price. That’s not to say share price manipulation is common because it isn’t. However, the currency is much more solid in that respect. 

Liquidity will not be a problem if you’re looking to cash in on a profitable position whilst trading currency. However, stocks can occasionally have this issue, especially if the market is hitting a serious downturn.

A recent example of speculative currency trading took place in the United Kingdom. The new Prime Minister unveiled a budget heavily reliant on government borrowing and large tax cuts for the richest portion of the country. This caused international speculators to question the strength of the Great British Pound. Understandably, the United States Dollar rallied heavily against the Pound following this budget. Some speculators and forex traders anticipated this budget and prepared accordingly. Due to the sharp decline and volatility of the Pound, a number of them made considerable gains.

Hundreds of millions of dollars were made due to the news, and speculators made a handsome profit. The ones who turned this profit would have had no problem worrying about liquidity, as it simply isn’t an issue when it comes to forex trading. Forex trading takes the prize when it comes to forex trading vs stock trading due to the liquidity options between the two due to the huge pool that is made available to people trading currency.

The Benefits Of Stock Trading

When it comes to forex trading vs stock trading, it is a different beast compared to forex trading. Stock trading vs forex throws up different arguments and challenges for each market. For instance, some stocks provide steadier growth and can be less volatile than trading currency. Even when the market is in a downturn or going through a difficult period, certain stocks are more accustomed to dealing with the stress that uncertainty can bring. These stocks are commonly known as “blue chip stocks”. 

A blue-chip stock is a large, usually multinational corporation with a consistent and well-respected reputation. It will usually be a company that has been a market leader with strong balance sheets for several decades. This includes year-on-year profit and payouts to investors and shareholders. Examples of blue-chip companies include Apple, Microsoft, and Morgan Stanley.

To indicate how well-established a company needs to be to receive this status, Apple did not receive theirs until 2015. They only received it after they joined the DOW. Forex trading vs stock trading isn’t a battle between the two. Most seasoned, experienced and savvy investors recommend having a balanced portfolio which ideally contains both.

You may prefer one over the other, in any case. Forex trading seems to have benefited more from the rise of the 24/7 trading platform.

If your stock moves in a volatile manner, you want to be able to view it and make an effective decision. 

Regardless of whether forex trading vs stock trading, you are equipped to execute your trade any time of day or night if you use take profit and stop loss orders. Both of which are part of an effective risk management strategy.

However, if your investment strategy is to purchase the stock and hold it. This means you have no plans of selling in the short term. Then stocks would be a better option. Blue chip stocks generally provide steady revenue for any investment you hold. In addition to this, they don’t rely on multiple factors and price movement changes like forex does. Not only does it allow steady growth, but you can also receive dividends from your investment. In addition, you can rest easier knowing that many of these companies have multi-billion-dollar turnovers.

So, the chances of them going under or suffering serious turbulence is less likely than a currency dropping wildly due to market issues. In any event, the best way to trade and invest is to implement a strategy. You need one that focuses on your overall goals. This includes how much profit you wish to make and how much money you can afford to lose.

Stock Options Vs Forex Trading

There are similarities between stock options and forex trading. Options are essentially an agreement that allows option holders to buy assets, such as stocks, at a chosen price at a later date. A premium is paid for this type of contract to be marketable for both parties.

If market prices are not beneficial or profitable for the contract holder of the stock option, it is likely they will run this down until it expires. Making a conscious decision not to act on the contract is a cost-effective move.  It ensures that they don’t outweigh the premium they’ve paid and is a good way to manage the loss. However, this works the other way, too. If the stock becomes profitable, the position is more valuable to the stock option holder.

In many ways, stock options and forex trading are similar, but they work differently from stock vs forex trading. We have an insight page specifically about that topic if you’re looking to get involved in forex trading. They both rely on speculative and educated gambles that a market will move in a specific direction. Of course, in a broader sense, this is what all trades are based on. However, stock options reward the trader for investing in the stock’s future price. This is a key point when it comes to forex trading vs stock trading debates.

Conclusion

There are pros and cons to stock vs forex trading. We’re certainly not going to sit here and tell you that you should do one over the other. Ultimately, the decision is yours. Whatever type of trading best suits your strategy, income and risk appetite is the one you should choose. As you can see today, forex trading vs stock trading throws up a lot of different yet valid points.

There’s plenty of room in the market to have a diversified portfolio. This doesn’t just limit you to forex trading or stock trading either. This includes commodities, property, cryptocurrency or other investments.

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