Forex vs Stocks Compared
The Forex market is the largest financial market in the world. In 2011, the average daily trading volume exceeded 4 trillion dollars. Many traders prefer Forex to other markets due to the high level of liquidity, the continuous process of trading during the day and the amount of leverage that is provided to market participants.
As for the blue chips, these are shares of well-known financially significant companies with a well-established history. Such shares, as a rule, continue to generate income in difficult economic conditions, as well as are characterized by stable dividend payments. Blue chips are usually less volatile than other investment instruments. Most often they are used to ensure stable growth of the investment portfolio.
Volatility is a financial indicator that characterizes short-term price fluctuations. Some traders, especially short-term and day-to-day traders, rely on market volatility and try to profit from sharp price spikes. However, other traders feel more comfortable in conditions of less volatility and when dealing with less risky investment instruments. Therefore, short-term traders are attracted by the volatility of the foreign exchange market, and long-term investors – the stability of blue chips.
The size of leverage is another aspect worth considering. In the U.S., investors who trade stocks are usually offered 2-1 leverage. On Forex, the amount of loan capital is much higher – 50:1 in relation to its own. In some countries, the ratio is even greater. However, is leverage so good? Optional. Of course, the use of loan capital helps to “build” your own with minimal investments. So, a trading account on forex can be opened, having only 100 dollars. But on the other hand, leverage can also easily lead an investor to bankruptcy.
If we compare these two in terms of brokers we can clearly notice that the Forex market has an upper hand. Generally, brokers in Forex are better and in numbers, they are also more than the ones in the stock market. One of such brokers which enjoy high popularity is T1Markets. If a question arises – can T1Markets be trusted – the answer would definitely be yes because of its license and period of activity, while in the stock market we often encounter various scams that are damaging client’s funds.
The choice of a trading instrument may also be based on the time period during which the bidding is conducted. As for trading sessions for stocks, they usually last from 9.30 a.m. to 4 p.m. Eastern Time (14.30 GMT and 21.00 GMT) Monday to Friday, excluding holidays. Activity on Forex does not fade during the day from 17.00 Sunday (22.00 GMT) to 17.00 Friday. First, the trading floors open in Sydney, and then alternately in Tokyo, London, and New York. Flexible graphics are an undoubted plus of Forex. The constant alternation of the American, Asian and European sessions also provides a good level of liquidity at almost any time of the day. Thus, the trader does not have to limit trading activity because of his daily routine.
Volatility and liquidity of mini-futures attract short-term traders who work with stock indices. The value of the average daily trading volume of major index futures is $145 billion, which in dollar terms exceeds the total trading of 500 base shares. Average daily fluctuations in the price of e-mini contracts allow you to profit from short-term transactions.
Despite the fact that the volume of trading mini-futures is not comparable to the foreign exchange market, e-mini contracts have many of the advantages that forex provides: high liquidity, favourable for short-term transactions, average daily price range and the ability to conduct trading at any time convenient for the trader.
When trading futures, traders have access to a large credit shoulder, as well as in the Forex market. Only in the case of futures leverage calls the margin (mandatory deposit, which can be used by the broker to cover losses). Minimum margin (guarantee) requirements are set by those exchanges on which trades are conducted. Sometimes the margin can be only 5% of the value of the contract. However, brokers can also assign higher amounts. As a result, as on Forex, traders have the opportunity to trade large positions with minimal investments. This makes it possible to make a big profit but can lead to huge losses.
Although the tax rules do not apply to the main topic of the above mentioned article, it should be noted that each trading instrument may have its own taxation features. For example, short-term gains from futures contracts often have lower tax rates than similar gains from stock trading. Moreover, if trading in the financial market is the main source of income, it is necessary to seek advice from the tax office. A market revaluation of the value of a portfolio of securities may also entail additional costs. For the best management of investment activities and related tax liabilities, investors are strongly encouraged to use the services of qualified accountants and tax professionals.
Trading on the Internet and through various platforms offers investors and traders from all over the world endless opportunities to bid in various financial markets. Often the choice of trading instrument – stocks, currencies or futures contracts – is based on the investor’s tolerance to risk, the size of the trading account and confidence in the chosen strategy. If the activity of the trader is high, but he does not have access to the markets during the standard hours of market trading and cannot effectively control the trades, then the shares are unlikely to be suitable. However, if the investor intends to “buy and hold” the asset for a long time while receiving a stable income and replenishing their capital, the shares look quite an appropriate option. In any case, regardless of the chosen financial instrument, the decision of the trader or investor should be based on which asset is closest to the interests of the market participant.