The Forex Market or the Stock Market?
#398: The Forex Market or the Stock Market?
In this video:
00:28 – Which is the best market to trade?
00:51 – The Forex market is open 24 hours a day
02:27 – It’s easy to follow and understand the 8 FX currencies
03:43 – Massive liquidity in the Forex market
04:44 – Use Leverage to your advantage
05:42 – You can trade Forex long and short
06:27 – The low cost of trading the Forex market
06:47 – The ability to take high reward:risk trades
08:13 – Send me the trading topics you’d like me to discuss
Should you trade the Forex market or should you consider trading the stock market instead? Which is best? Let’s talk about that and more, right now.
Hi Forex traders. It is Andrew Mitchem here, the owner of the Forex Trading Coach with video and podcast number 398.
Which is the best market to trade?
And I want to talk about the differences, the comparisons, the benefits of trading the Forex market over the stock market. It’s a question I get asked quite often. And so I thought to help you out, I’ll give you what I see the benefits of the Forex market that are clearly beneficial to us as traders and why I choose the Forex market over the stock market. So to list these in no particular order.
The Forex market is open 24 hours a day
The first one, the market is open 24 hours a day when you trade the Forex market. So it’s open five days a week. It opens at 05:00 PM, New York time on a Sunday, and it closes at 05:00 PM, New York time on a Friday. So it’s open for five complete days, 24 hours a day, and it doesn’t shut within that time.
Now that has many benefits. Depends on where you live around the world. You may find that some exchanges, if you’re trading the stock market, it may be crazy hours of the day for you. As an example, for me, living here in New Zealand, I can trade the Forex market quite easily, any time of day. Yet, if I wanted to trade the US stock market, I’d need to be up from about two o’clock in the morning through to about 06:00 or 07:00 AM every day. And there is no way I’m doing that. And it depends on where you’re living. If you’re in Europe, let’s say, you can’t trade the Australian stock market very easily because of the time differences. And when you have time differences and you have exchanges open for, let’s say eight hours a day, what you tend to find is between one day and the next day you have gaps in the price and you have price jumping from here and opening the next day up here. So all sorts of different things like that, which as a trader can become a problem.
Yet with the Forex market, it doesn’t matter where you live in the world, what time zone you’re on. When you look at the market, the market is open. And that to me is a massive, massive benefit. And you just get that continual flow with the Forex market that you don’t get in the stock market.
It’s easy to follow and understand the 8 FX currencies
Another benefit, when you look at the Forex market, there’s really only eight currencies that we look at trading. You get to know pretty soon the characteristics, how they move, how they flow with each different currency and the currency pairs. Yet if you’re trading the stock market, how on earth do you get to really know what’s happening with each of those stocks, those companies, what their debt levels are like, what their employment levels are like, what their plans are? All those type of things that I don’t believe that you really can know. And even if you study just a few of them, well, there’s thousands of them to go and look at. So how do you know which one to look at?
Whereas the Forex market’s such a small focused market. And when you get currencies like the New Zealand and the Australian and the Canadian that tend to all move together because they’re the commodity currencies and you get the Euro and the Franc moving opposite to each other, because they’re highly correlated, you really don’t have a lot of different markets to focus on, which makes our job a lot easier. So we can then focus on what’s happening on different timeframe charts and very, very easy in comparison to know what’s happening.
Massive liquidity in the Forex market
Liquidity is another massive benefit that I see in the Forex market, because it is the biggest market in the world. And completely, massively more in terms of what’s traded there in the Forex market than all the other markets, I think almost put together. As a trader, it doesn’t matter what I’m trading. I click my mouse, I’m in and out of a trade instantly. The liquidity is amazing. It means that the cost of trading is very, very small. My spreads are small compared with stocks, where spreads or commissions can be quite large. Finding a willing buyer and a willing seller, which is basically what we’re doing when you’re buying or selling, as a currency trader is absolutely simple. The market’s not shut. And I’m thinking, “Oh, I want to sell this stock, but I can’t because the market’s shut.” Or the volatility is not there. There becomes those issues with the stock market side of the things that you never ever see in the Forex market.
Use Leverage to your advantage
So leverage, another big part of why I personally think that trading the Forex market is so much better than the stock market, because with leverage, you can basically trade and control quite a large sum of money with just a relatively small amount. And that means that you’re not like with stocks, if you’re buying something and buying and holding, your money with no leverage is tied up and it’s tied up for a considerable length of time in most cases, because generally most people with the stock market are more buy and hold type of people. Whereas with the Forex market, you can control a large amount of money with a relatively small amount of money, which means you can take multiple trades. Some trades you may be in and out of the trades within minutes. Some may be days or hours. Some may be days depending on what type of Forex trader you are, but it allows you to take multiple positions with a relatively small amount in your account, which is another massive benefit.
You can trade Forex long and short
With the long and short ability of trading, that’s another huge benefit as well. Because we’re trading currencies as currency pairs together, we can just as easily press sell and look for a currency pair to fall and make exactly the same money as if you’re taking it long and buying. Whereas most people traditionally with stock markets, you are literally buying and anticipating it moving up. Now sure, that may be changing with CFDs and the way that you can now start to short stocks, but traditionally the Forex market has completely always been buy and sell, and that is a benefit over the normal way that most people trade stocks.
The low cost of trading the Forex market
We’ve talked about the entry fees, the low cost. Let’s say, for example, the Euro US dollar, the spread is so small because of the amount that’s traded all the time. And it’s not just during the European session, it’s all around the clock, five days a week that the spread, the cost of that entry fee is so small.
The ability to take high reward:risk trades
And to me, one of the last benefits that I see of the Forex market is the ability to trade and have profitable trades with high reward to risk. So it means that my reward out of a trade, maybe two, three, four times my risk. Now I can do that relatively quickly in the Forex market. And that could be depending on the timeframe trade you’re trading, it could be again within minutes or hours, sometimes days, but I could close out of a trade with very low controlled risk, high reward to risk. Whereas if I’m trading the stock market and I’m buying a stock let’s say, I would have to wait, in most cases, a long, long time to make two or three times your risk on that trade. And being able to do that, by buying and selling with the liquidity, with the low cost of entry and exit, with the 24 hours a day market, to me, you put all that together, and undoubtedly the Forex market is a better market to trade than the stock market.
So I hope that helps. Hope that answers your question. Don’t forget, that’s just my opinion. I’m not saying it’s the right answer. There is really no right answer. It depends on what you, as a person, as a trader, like, but for me, I’ve always traded the Forex markets because of those benefits, and I think they are huge.
Send me the trading topics you’d like me to discuss
So if you have any questions, just like that one that was sent to me last week, that you’d like me to cover on future videos and podcasts, just send me an email, [email protected], and I’ll help you out, by answering your question for you.
I’ll see you this time next week. Bye for now.
Episode Title: #398: The Forex Market or the Stock Market?