Each investor has a different preference on how they would like to achieve their financial goals. However, every investor still holds onto the common goal of generating profit. Some investors try their hands at real estate, while others throw their hat into the futures markets. But then there are those who are torn between Forex trading and the stock markets.
Trying to sort out the battle with Forex vs stocks is easier when you break everything down into its component parts. There are benefits to both types of investing and each market appeals to different kinds of people. But if you have your mind set on making a profit investing in an exchange, then the Forex vs stocks battle is not quite as close as you may think.
In the investing world, more value means more opportunity. The Forex vs stocks war begins with a look at the value of each type of market and, in the end, the comparison is not even close.
The Forex market handles nearly four trillion dollars per day in financial transactions, while the stock exchanges handle only a fraction of that. If you are looking for an investment option that gives you access to a wide pool of financial opportunities, then the Forex market is where you want to be.
Your leverage ratio is how much money you borrow to generate a profit. A good example can be borrowing money to buy a house and then selling that house for a profit. If you buy a $100,000 house and put up $10,000 of your own money, then you will need to borrow the rest. This means that you spent $1 of your own for every $10 you borrowed, which gives you a leverage ratio of 10:1.
Now let's say that you sell that house for $110,000 before your first mortgage payment was due. Ignoring all other potential holding costs of owning a property, you received $20,000 in cash after paying off the mortgage, which means you realized a 100 percent profit.
What if you had paid for the house in cash and then sold it? If you had paid $100,000 for a $100,000 house, then your leverage ration is 1:1. If you sold the house for $110,000, you only make a profit of 10 percent. Leverage, when used properly, can be extremely powerful.
Stock markets tend to offer a leverage ratio of around 2:1, but you can get a leverage ratio of around 50:1 with Forex trading. Once again, Forex trading wins in this battle of Forex vs stocks.
Investors that do not like volatility tend to shy away from Forex trading because the Forex market tends to fluctuate more than the stock markets. While this makes sense if you are looking for investment stability, it doesn't really work if you want to generate a profit.
Volatility can be good or bad, which is why Forex traders enjoy the dynamic currency exchange so much. A volatile exchange increases your chances of making a significant profit in a short amount of time. While this can increase your exposure to risk, it can also have the opposite effect of pulling you out of a downward trend before you lose your money. In the investing world, volatility means fast profits and the Forex market is very volatile.
In the ongoing debate of Forex vs stocks, the availability factor is a huge point of contention where Forex tends to pull away. Investing in stocks is a much more regimented practice than getting involved in the Forex market, and that can influence how much money you can make.
It is possible for a new Forex trader to open a broker account with less than $100 to deposit. Since the leverage ratio of Forex trading is 50:1, the chances of turning that initial investment into something substantial are very high.
Stock brokers require initial investments that can be quite significant. Wire house representatives are full-service stock brokers who can require initial deposits that start as much as $1,000. Even online discount brokerage firms usually require an initial deposit of $500 to get started.
There is no trading when stock exchanges are closed and most exchanges keep typical Monday through Friday business hours. Stock markets also close on various holidays, which can often create long weekends. This can be a huge problem when you have an important trade to get in when the exchange opens and your broker has dozens of other trades ahead of you.
The Forex market is open 24-hours a day and you can order trades whenever you want, even on weekends and holidays. The ability to react instantly to a fluctuation in the market rates allows Forex traders to be able to generate consistent profits and maintain a stable portfolio.
In the comparison of Forex vs stocks, the Forex market offers opportunities that the stock exchanges cannot. A Forex trader can open an account with a minimal investment and then turn that investment into a significant gain in a short period of time.
It should be noted that trading stocks and getting involved in the Forex market carry risks. You could make a lot of money, or you could lose all of your money before lunch. But for the investors who want to take their time and learn how to maximize the potential for a particular investment market, Forex trading continues to be a very attractive investing option.