Forex vs Stocks – Which is better for you?
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Easy Accessibility
One of the most attractive reasons that the Forex market is accessible to almost anyone is the fact that there are practically thousands of brokers that offer 100% Free, no commitment, no deposit required down-loadable trading platforms that allow you to trade the market live using a “demo” account. A Demo account gives you nearly the identical experience that you will experience if you one day decide to start trading with real money. The value of this type of experience is incalculable, as it allows the trader to find out whether or not he or she has what it takes to compete in the world’s largest financial market. The aspiring trader can brainstorm, analyze and test strategies for several days, months or years before they feel they are ready to begin. For the patient and disciplined, the value of this cannot be overstated.
Another advantage that the Forex market offers the novice trader looking to find his niche is the ease of entry into a live account. The world of stock trading is dominated by a select few online brokers who have collectively agreed that $1,500 to $3,000 seems to be the minimum amount that they will accept to open an account, and at those levels, the level of services is even reduced. In contrast, there are many reputable Forex Brokers who have established Micro-lot programs which allow the trader to enter the market with a very small amount of risk by trading what is called micro-lots. These programs extend their hand to the trader with little capital to employ by lowering the entry threshold to as little as $25.00. In addition, these deposits can be made quickly and easily via a credit or debit card, while most stock broker deposits require a wire transfer or ACH deposit.
One of the most disappointing moments in a developing trader’s career comes at the time they realize how much capital they have to commit to a stock trade in order to make substantial money on a short term move. As an example, to make $500 on a 5% move over the course of a week or two, the trader has to commit at least $10,000 if he or she is not margined. If margined at the normal maximum of 2 to 1, then that amount may be as low as $5,000, but then the trader is open to the risks inherent with being leveraged in the stock market. Large opening gaps and major unannounced announcements can happen at any time, and devastate the traders account without giving that person any possible way of avoiding the tragedy. By comparison, the Forex market offers the trader a much lower risk profile by offering as much as 500 to 1 leverage in some markets. More realistic is the new US standard of 50 to 1, but still, this amount of leverage allows a trader to drill down to the lower time frames and develop a plan that extracts substantial profits from a much more acceptable risk profile. And, because the Forex market trades 24 hours a day during the week without any gaps, the chances are slim that price will move substantially far away from the trader’s entry price before he or she is able to make an exit decision. As long as the astute Forex trader exits trades on Friday, and enters again after the Sunday night EST opening time, the odds of getting burned by a gap or excessive flash move are very low.
On the same wave link as the previous point, the Forex market allows the trader to enter and exit in an unfettered way, regardless of the size or configuration of their account. On the other hand, the US stock markets require a participant to maintain a balance of at least $25,000 in their trading account to be classified and permitted as a “day trader”. Without this classification, you are limited to 3 in/outs per 5 day rolling week, meaning that you are allowed to enter and exit during the same market session, but only 3 times every 5 day rolling week. This restriction forces new market participants to miss out on some of the most reliable setups that exist in the stock market, as they are not legally able to routinely enter and exit during the same day. Forex wins again!
“Technically” more accurate
Aside from the entry requirements for trading a live account, the Forex market offers the novice trader a shallower learning curve than does the stock market. Because Forex trades 24 hours a day, and traders are not “in a hurry” to sell or buy before an upcoming close in the market, market participants don’t often produce irrational movements that can’t be predicted. The stock market, with its’ pre-market, NY open, lunchtime doldrums, bond closings, NY close, and post-market trading create a labyrinth of movements that those outside the Wall Street Elite are left to only make educated guesses about. The Forex market, while it does react strongly to some news items and occasionally does something that seems out of the blue, mostly gives the educated trader sensible and definable patterns with which to measure entries, stops and take profit levels. Forex, like all markets, goes into sideways patterns that are difficult to predict, but, just like all markets, that is not the time to trade heavily. When the Forex market starts to trend, however, the skilled player is like the proverbial “kid in a candy store” looking at and scooping up those little green and red candies.
The size of the Forex market cannot even be fairly compared to the stock market. Almost $4 trillion a day is exchanged every single day, and if you relate those dollars to the analogy of each one being a vote, then it helps one understand the realities. Each one of these trades is a vote on what the current price of each currency pair should be, and the reality is that having such an enormous ocean of variant ideas about where the price should be provides a dampening effect that results in a smoother overall price movement. The result is a more predictable and playable market.
In the stock market, the number of shares available to trade of any one security can have an enormous effect on how that security trades. The smaller the float, the more erratic and unpredictable its’ movements can be. Many day traders don’t like trading anything that trades less than 1 million shares per day. This insures that the instrument is liquid enough for them to enter and exit with an acceptable amount of slippage. Compare that to the Forex market, where 4 million times that number of transactions take place. To an Forex trader who avoids trading news events and the 5pm EST rollover, slippage should be completely limited to the market spread at the time of entry and exit.
That leads to yet another reason that Forex makes sense as a trading vehicle for the intelligent trader, the low costs of commissions. Actually, very few Forex brokers even charge commissions as the primary source of income for an honest Forex broker is the “pip spread”. This is the difference between the typical bid and offer that is common to every market, but in Forex, that is all that you “pay”, although you never really write a check or see it deducted from your account. The spread just gets rolled into the trade, whether it wins or loses, so that when you exit all trades and your account is flat, the amount that shows in your account balance is all yours. There will be no additional broker fees, SEC fees, Exchange fees, data fees, etc… Now that’s something that you can get excited about.
Education is available, but Buyer Beware!
Of course, it would be hard to find anyone that would agree that just anyone can enter the market successfully without first getting a proper education. While, in rare occasions, it has been done, even then it was not without a few “near financial death” experiences, and hard won lessons. Training is essential to successfully operate in the worlds’ largest market, but where does an aspiring trader go to get the best education at the best value?
There are a great many operations on the Internet that claim to be able to convert the newbie trader into a master in “just one weekend” or after “learning the secret that no one else knows”! Level headed people can spot these scammers a long way off, but others have not been so lucky. The best advice is to limit the amount of capital you commit to education in the beginning, as trading capital is the most precious asset that any trader has.
We at FXBattleground.com have seen and heard horror stories about a great many of these types of educational offerings, and to be honest, we’ve never been impressed. Our goal is to present an aspiring FX trader with a new paradigm in Forex education. What we offer is a dynamic, professional Forex education that offers an incredible value when compared to what else is out there. If you are considering entering the FX market, we simply ask that you evaluate what we have to offer.
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