For typical buy-and-hold “long only” investors, stocks remain a clear-cut choice due to many reasons. Stocks are known to provide positive returns, investors can get regular income from dividends; divided and capital gains have helpful taxation and many more. But when we talk about trading, even then the odds are still in favor of stocks, but that doesn’t forex trading has no advantages. Forex trading has a number of advantages to offer.
Below are a few factors that you should consider when deciding whether to trade stocks or forex.
- Fundamental or technical analysis: Technical analysis is important aspect of forex trading. This means an investor has to examine market and stock fundamentals. If determining intrinsic value and using relative valuations are important to your trading strategy, you should probably opt for stocks. But if you like charting and analyzing technical patterns, you will enjoy forex trading.
- Leverage: When it comes to leverage, forex is another world. Can you handle leverage of as much as 50:1 levels, which are available for forex trading, compared with just 2:1 for trading stocks? Excessive leverage can improve returns when your trades are working out but it can also remove your trading capital in minutes. If you are not sure about your ability to handle leverage, then avoid forex trading.
- Discipline: Do you have the trading discipline to reduce your losses? For example, can you take quick action when a trading position is going wrong? Trading discipline is important for forex trading due to the potential for magnified losses through leverage. In stock trading, the losses are usually limited to the amount you invested.
- Bearish bets: Forex trading makes it easy to take a bearish bet on a currency. If you think the USD is headed lower against the Japanese Yen, all you have to do is sell USD vs. JPY in the forex market. Shorting individual stocks is slightly more complex, although it is easier to take a short position on equity indices through inverse exchange traded funds.
- Number of positions: Forex trading involves a limited number of currencies. A forex trader only has to watch less than 10 major currency pairs. Stock trader, on the contrary has a choice of more than 3,000 stocks only in U.S.
So, you are well suited for forex trading if you have technical analysis, a solid trading discipline and you are market savvy enough to implement hedging strategies. But, if you feel these are not your strong points, you stock trading is a better option for you.
Or the easiest way is to opt for stock market advisory services or forex calls depending on where your interest lies.
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