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Why Currency Trading Beats Stock Trading in 2022?

Why Currency Trading Beats Stock Trading in 2021?

As we have plenty of options around us for long-term investment or short-term trading, it can be overwhelming for many of us. Both currency, aka Forex market and the stock market, are the most popular markets in the world for trading. The Forex market is the largest trading market with a daily exchange of more than $6 trillion. And more than $1 trillion is traded daily in the stock market. You may wonder which one is more profitable? Why Currency Trading Beats Stock Trading? 

Some traders think that stock trading is more profitable based on their experience and accessibility of the markets. On the other side, currency trading is also gaining mainstream attention, and forex traders think it is more profitable than any other market in the world because of high volatility and trade volume. 

The debate may go longer on the efficacy and profitability of both markets as stock and forex markets are the most popular ones and offer a great variety of trading instruments.   

What is forex trading?

Forex or foreign exchange involves exchanging currencies not only for trading purposes but also for travelling abroad, cross-border transportation, and several other reasons. For example, there are popular currency pairs such as EUR/USD, GBP/USD, JPY/AUD and more. These currency pairs are traded across the world with the combined exchange rate. Benefits of Forex Trading

Forex trading is one of the most basic forms of trading in which you do not need a high initial investment. Forex market is a decentralised marketplace that is open 24 hours a day. The market is the network of millions of traders around the globe. It is a highly volatile market where you can trade one currency against another. Forex traders use an over-the-counter (OTC) approach for trading currencies. 

Several factors affect the price of currency pairs, including political shifts, diplomatic relations, the overall state of the economy, etc.    

What is stock trading?

Stock trading is the process of trading shares of public listed companies on a stock exchange. A stock you own determines the percentage of your ownership in that particular company. Unlike a foreign exchange, the stock exchange is the physical market where stocks are traded. 

There are various popular stock exchanges worldwide, including NASDAQ, the Shanghai stock exchange, the London stock exchange, NSE India, etc. The price of stocks depends on multiple factors covering economic performance, market sentiment, change in leader’s position, etc. 

Why Currency Trading Beats Stock Trading: Key differences

There are various key differences between forex and stock trading in terms of trading hours, liquidity, leverage, volatility and trade volume. These differences will let you understand why currency trading beats stock trading. Both markets can be lucrative and involve risks. But it depends on you how well you can balance out both these components in your trading journey. 

So the key differences are 

On the basis of trading hours  

You can buy or sell stocks in a limited time in stock trading. There is also an after-hours trading market for stock trading, but trade size is much smaller in those hours, plus you cannot take the benefit of high liquidity in those hours. In addition, there are several other reasons that the after-hours trading market is not as popular as regular trading hours. 

You can do your bit by taking the best out of the regular trading hours in the stock market because it’s not easy to trade 24/5 in the stock market. Stock exchanges follow their own rules, and stock exchanges around the world have different trading hours. Limited trading hours also limit the options for investors. In addition, stock markets are closed on public holidays and weekends. 

On the other hand, the forex market offers you flexible trading hours, and the online market has no fixed location, and this is one significant advantage that there is no gap of trading hours in 5 days a week. Traders can take advantage of this in a lot of ways. All participants trade in the forex market from different corners of the world. When the trading hours are flexible, it will be easier for you to perform the technical analysis. 

You can make better decisions as you can time your trades any 24/5 and monitor the market whenever you get a free minute. Forex currency pairs are traded through the interbank market. Because of the 24/5 virtual access of the forex market, the forex market is gaining mainstream adoption these days.

On the basis of trading volume

More than 50 major stock exchanges across the world have a valuation of more than $69 trillion. The market is big enough for the daily participation of an average individual. As the new age of inventors intensifies trading with an aggressive approach, the market is expected to touch more than $100 trillion soon. 

Stock exchanges in Asia and North America are the greatest contribution to this industry. Asia is contributing more than $23 trillion, and in North America,  more than $28 trillion value of shares have been traded. The United States stock market holds a significant part of the value. 

On the other hand, the forex market has more than $6 trillion daily trading volume. Because of the large trading volume, it is very easy to participate in the forex market with a minimum initial investment. You can prefer your price while trading forex currency pairs. You can execute your trades in the forex market because of the large trading volume.

Traders should be aware of the fact that they can make the best out of their investments in foreign exchange as the massive amount of money is traded daily. Moreover, when you get exposure to the high trade frequency, your chances to enter and exit the market also increases. Therefore, it would be much easier for you to make a better decision because of the high market intensity in foreign exchange. 

More than 80% of currencies are traded against the dollar. Thus, even an average investor can make regular income in the forex market due to the large size of the market. 

On the basis of Liquidity

High trading volume results in increased liquidity. The forex market has higher liquidity as compared to the stock market. In foreign exchange, there is a whole international market because of which the higher trade volume is distributed equally, and every investor or trader can take advantage of that. 

On the other hand, in the stock market, every stock has its trade volume, and the stock market does not act as a whole, which means trade volume is uneven. As a result, some stocks have high trade volume, and some have low, making the stock market vulnerable to lower liquidity. For example, blue-chip stocks like Apple, Oracle, Facebook, Tesla have higher trade volumes than the small and mid-cap companies. 

In the stock market, the low trading volume makes it difficult for traders to participate. Still, you can have at least a decent amount of trades in the stock market. Liquidity does not affect the accessibility of the shares and trading. Traders hedge against the currency pairs in foreign exchange to reduce the potential losses, and it’s an added advantage for traders to make the best out of it because of high liquidity.

The Forex market is the most liquid market in the world, which makes it easier for traders to participate. You can trade in the forex market with many conveniences as there are a handful of currencies available. It is likely to be more aware of the fact that more currencies lead to more trading as the volume and size are high in the foreign exchange.   

On the basis of leverage 

In stock trading, minimal leverage is offered. Many brokers keep targeting you by fake promises of providing higher leverage of 1:150 or more, but this can not be true. The maximum leverage on stock cannot be offered more than 1:4. But there are genuine brokers like ABinvesting. They do not play with and make false promises. ABinvesting provides the highest possible leverage on stocks and is well regulated and known for its services.    

1:4 leverage for stock trading is only offered to those short-term traders who close their position before the end of the trading day and maintains the minimum trading balance of $25,000. But this figure is not fixed for every stock exchange and changes according to the market conditions. In addition, marketing trends drive you to take the benefit of the leverage to gain higher returns.

Leverage for forex trading depends on the brokerage firm, the maximum leverage limit for forex trading is typically up to 1:500. You can access leverage up to 1:500 with ABinvesting on popular currency pairs. For that, you need to open a pro account with the broker. The added advantage in forex trading is that there are no qualification requirements for accessing leverage like the stock market. 

Leverage is one of those components of trading which are highly lucrative for traders. The tool has the potential to multiply your returns more than even ten times. But one also should be aware of the risks associated with it. Higher the potential returns, the higher the risks. 

On the basis of Volatility

The markets with high volatility have quick price changes in asset’s value, whereas low volatility leads to gradual price changes of the underlying asset. Values of currency pairs fluctuate with a high intensity as the vast number of traders and business participates in the market. This indicates that a large trading volume results in higher volatility. 

Now we can conclude that all these components are interrelated. Large volume leads to rising in both liquidity and volatility.

On the other hand, the stock market has lower volatility than the forex market because the price patterns are much more stable in the stock market. Another reason for stability in the prices of stocks is low trading volume. 

However, both stability and volatility can be beneficial or non-beneficial depends on the individual and the market conditions.   

Why Currency Trading Beats Stock Trading?

The components or factors that we have discussed above are the key reasons why the currency market took over the stock market. The large trading volume, highly liquid currency pairs, high volatility, flexible leverage and trading hours attract traders worldwide. In addition, long-term investors prefer to stick with stock trading because of the stable price patterns.

On the other hand, short-term traders like to gain on the small price movements, which can be seen in both stocks and currency pairs. But there is a high number of participants in the forex market because it seems more lucrative.  

What should you choose?

It would be good for you if you choose what works best for you. Currency trading beats stock trading does not mean that the currency market is better than the stock market, or you can gain more through foreign exchange than investing in stocks. Both markets are unique and are specialised in different terms. It depends on the trader on s/he can make the best out of it. 

But a new generation of investors or traders are a bit impatient, and most of them want to make quick profits. Forex currency pairs are suitable for short-term traders due to high volatility and trade volume, so they are inclined towards forex trading. However, young traders must exercise caution. It would be good for them if they do not get carried away by short-term gains.

Why Currency Trading Beats Stock Trading: Final Words   

Whether you are trading in the stock market or foreign exchange, you should also be aware of the associated risks. The currency market is taking over the stock market does not imply that you should stick to the forex market. Choose what works best for you without looking at the trend or other traders. Following market sentiment mindlessly can cost you both money and mental peace. 

Analyse both the markets thoroughly and make an informed decision. Risks are inevitable whether you go with forex or stocks. Keeping that in mind and the factors affecting the market, you should start your trading journey. 

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