Traditional Stocks VS. Forex – Which One Is Right For You?

forex vs stocks

The investor today has access to a growing number of trading and investment instruments.  These range from the traditional industrials and blue-chips to the fast-paced forex and futures markets. It can be complex and complicated to decide which of these is best for your investing taste and there are many factors which you should consider.


One of the most important is your risk tolerance and your style of trading.  If you are more a buy-and-hold type of investor, then you may like the stock market.  However, if you like the excitement of short-term trading, then you might be more into scalping, day or swing trading.  These types of markets have much more volatility than the stock market.  One of the most popular of these markets is the Forex.  A comparison between the blue chip stocks, industrials, and indexes and the more volatile Forex market might help you decide which is right for you.

Blue Chips VS. Forex

The largest financial market in the world is the foreign exchange market or Forex. Trading on this market alone accounts for more than $4 trillion every day.  The Forex attracts many traders because of its liquidity, amount of leverage afforded to traders, and its 24 hours a day trading.

Blue chips, in comparison, are the stocks of financially sound and well-established companies. These types of stocks will generally weather economic upheavals well and historically pay good dividends. Considered less volatile than other trading instruments, blue chips are often used to maintain steady growth within an investor’s portfolio. trading forex vs trading stocks

Volatility

Volatility is used to describe fluctuations in short-term prices.  Some traders, especially day and short-term traders depend upon quick price swings and the resulting volatility to make quick profits.  Other traders, such as those in the stock market rely on less risky, and, therefore, less volatile investments to bring in stable, steady growth.

Leverage

One of the other important differences between the Forex and stocks is leverage. Within the Forex, investors can access leverages of up to 50:1, whereas, in the United States, stock traders can access leverages of only 2:1. Leverage is not always a good thing. While it may allow a Forex account to be opened with as little as $100, a few bad trades and the entire trading account may be destroyed.

Trading Hours

The Forex is open 24 hours a day, seven days a week, so trading takes place constantly.  Trading on the stock exchanges is limited to the hours the exchange is open, typically the traditional business hours of 9:30 AM to 4 PM Eastern Standard Time in the United States.  There are also major stock exchange markets in other countries, which helps provide more of a window for trading. When it comes to profit, the flexibility of Forex traders to trade all the major markets provides them liquidity literally any time of the day.

Investors and traders have access to a growing variety of markets because of electronic trading and the internet. Deciding whether to trade in Forex, stocks, or precious metals is dependent upon the trader’s style, account size, and risk tolerance.

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