Why is stock trading more famous than forex? In this guide, we will explain the reasons why some people prefer to invest in stocks over forex trading.
January 30, 2021 | AtoZ Markets – Investing is the smart way to have your money make money for you. Two main paths to investment are widely available. Stock trading is the most popular one that most people understand.
From the comfort of your own home, stock trading platforms now allow you to buy a small share of a company in a matter of seconds. If the company does well, the price of the stock increases, while some will pay dividends to investors when their performance excels.
The second option is Forex trading – Forex is an abbreviation of foreign exchange, with the trading element referring to international currencies. Anyone who has traveled abroad has likely dabbled in forex trading unwittingly when exchanging their dollars for the local currency. The difference with proper forex trading is usually scale, with the exchanging of currencies made possible by the reliable forex brokers offering traders the potential to make significant profits amid fluctuating currency values.
Without further ado, let us discuss 5 reasons stock trading is more famous than forex.
Five Reasons Stock Trading More Famous Than Forex
1#A massive number of stocks to trade
There are currently more than 2,000 different stocks listed on the NYSE and more than 3,000 stocks listed on the NASDAQ. This gives you plenty of options when it comes to choosing where to invest your money. For many people, however, stock trading is famous than forex because once you find a broker or investment firm you feel confident with, you can leave the day-to-day investment decisions to them.
2# Acquisition of assets
Unlike speculating on index movements, trading on the stock markets sees the acquisition of real, valuable assets in the form of the shares that are bought. Unless something goes disastrously wrong with the underlying business, any shares you acquire will retain some value that can be extracted at a later stage, making it a more secure investment with life-long value locked in.
3# Rate of return
Perhaps the main advantage stock market trading brings to the table is its inherent ability to deliver significant rates of returns. Contrasted with an interest-bearing bank account which might pay 5% per annum if you’re lucky (without factoring in applicable taxes and the impact of inflation on the value of capital), stock market trading can see a 5% return over the course of one day, and oftentimes even more for the shrewd investor.
4# Stocks are steadier
Even in low times, a strong company can keep its value or bounce back from adversity. Therefore, stock trading is more famous than forex for those looking at long term investment. Stocks are also good investments for those who value stability over a chance at quick high returns with the equally high risk of losses.
5# Stocks can pay dividends
Some stocks provide income in the form of a dividend. While not all stocks offer dividends, those that do deliver annual payments to investors. These payments arrive even if the stock has lost value and represent income on top of any profits that come from eventually selling the stock. Dividend income can help fund a retirement or pay for even more investing as you grow your investment portfolio over time.
Stock trading is more famous than forex for the above reasons, but it is exceeded in size by the forex market, which is the largest financial market in the world.
Why is Forex Trading Popular?
If you want a fast, exciting trading pace, forex trading is for you. Forex completes more trades every day than the New York Stock Exchange (NYSE). This means ample opportunities for those who prefer short-term investments with quick turnarounds.
Most forex brokers are compensated through the bid/ask spread, and, unlike stock brokerages, they do not charge extra commissions or transaction fees.
3# Forex influences
Rather than focusing on a specific company and how its performance affects its stock, with forex, you must pay attention to the nation of the currency you are trading in, and beyond – everything from a natural disaster to an election can affect the value of the currency. To trade smart, you need to keep up with world events, making it ideal for people who enjoy staying abreast with events around the world.
4# Margin trading
Trading on margin allows you to use leverage to get more for your dollar. With a margin account, you borrow money from your broker in exchange for keeping a small sum in your account (the minimum required margin) in order to increase your potential return on investment. Leverage is typically expressed as a ratio, such as 50:1, 100:1, 200:1. For you, the investor, it means that for every dollar in your account, you can place a trade for $50 of the currency pair you’re interested in. This means that you’ll get more in returns on the trades you win, but losses can be large for the trades you lose. Because of this, many forex traders make frequent use of stop-loss orders.
4# You can trade 24/7
The forex market is not tied to a geographic area, so even when one stock exchange closes, another is opening. This gives you round-the-clock opportunities for trading. However, not all trading times are ideal. Just because the market is open does not mean it’s active. In order to make money, you need to trade on an active market. The best trading times happen when the markets that relate to the currency you are trading overlap.
Stock and forex trading comes with their own advantages and disadvantages, but which is likely to be best for you?
Should you trade stocks or forex?
Whether stock trading is more famous than forex or not, your personality and goals determine whether you should invest in forex or stocks. Certainly, if you are more inclined to “invest and forget” – i.e., investing money toward retirement – and are interested in gradual, long-term growth, then stocks are a better choice. However, if you crave a more active, hands-on trading experience and enjoy the excitement of a fast-moving trading market, forex may be the best fit for you.
Importantly, always remember that any type of investing – whether through the online stock trading platform or a forex broker – is never risk-free. The opportunities for excellent returns make investment a sensible option if you have the knowledge yourself or seek the advice of a professional, but there are no guarantees that your money will grow.
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