With so many different asset classes to choose from, it can be difficult to decide what to trade?
The Foreign exchange market is the world’s largest financial market offering traders a chance to get a piece of the 5 trillion dollars that are traded daily. Whereas the stock market trades reputable and profitable companies that over recent years, have tended to grow consistently.
These markets share a common purpose of facilitating opportunities for individuals to make money. However, they are distinguished by their features, which make them more or less favorable to traders.
The stock market, compared to the Forex market is limited; major currencies can be traded 24 hours a day, 5 days a week. Unlike Forex, there are 8 hours a day available to trade equities. There are lower barriers to enter the Forex market; leverage allows smaller traders to get involved in bigger trading. Furthermore, Forex trading costs tend to be relatively small compared to charges for trading equities.
Costs and commissions that are considered conditional in the stock market are not as prevalent in the Forex market. The high liquidity results in traders benefiting from lower transaction fees and tighter spreads. Government, exchange or clearing fees are also non-existent.
The consistency and stability of blue chip stocks may be less risky for the long-term investor; however, the Forex market can offer more volatility and therefore offers more opportunities to make profits. Its volatility and high liquidity provides short-term and day traders with advantageous conditions to make quick and easy profits. In addition, traders can make money irrespective of whether the currency pair is going up or down. This is because you can buy (go long) or sell (go short) each currency pair.
Events that would render traders susceptible to losses are less likely in the Forex market. The Forex market is decentralized, its size prevents any one individual or institution from significantly influencing the market, this means market manipulation is also less likely. Whilst market manipulation is not commonplace in equity markets, it is a risk that needs to be considered. With careful analysis and research, a forex trader can protect themselves from potentially risky events such as economic data releases. Additionally, stop losses can be used as a form of risk management to prevent losses from spiraling out of control.
When trading forex, it is important to use a Forex broker which is regulated and offers clients risk management tools such as stop losses. Vantage FX is a world leading, award winning forex broker which is regulated by the Australian Investment and Securities Commission. It is a true ECN broker, whose liquidity providers include big names such as JP Morgan, HSBC, Citibank and Nomura to name just a few. Vantage FX take risk management extremely seriously and clients have access to free risk management tools, such as stops.