Are you better off trading the stock market or the forex market? Now, I know
this is quite a generic question but it is the one that I come across time and
time again. So, today, I want to look at this in some more detail so you can get
an idea of what the advantages and disadvantages are of both. Then you can
make a decision which way you want to go.
Here we are, back in sunny England for those of you that have been wondering
where I've been for last week. Just say, I've been off the airwaves. I've actually
been on my annual vacation to the Philippine Islands flying around and
exploring though I've factored 7,200 islands that make up the Philippine
Islands and I was able to explore just four of them. So here's to next year, see if
we can take in a few more. Before I continue on this very important topic of
what's the preferred route to trade, either Forex or the stock market, I want
to remind you to subscribe to my channel if you haven't already done so. Now, over
the last couple years I put together a whole bunch of educational videos. All
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explore in your own time. Also, don't forget to hit the notification icon. That way,
you're going to be notified the moment a new video has been released. Okay, let's
get straight into it. So what is the best to trade? Well, let me say, I think this
really does come down to your personal objective, ss much as anything. Right, so,
what is the best approach? Well, generally speaking and I mean this in really
general terms, stock market investing is for the longer term.
So, for example if you have a longer term objective say a 5 to 10 year plan, you
might want to look to fund a pension or indeed, pay for school fees. That
generally speaking, trading the stocks will be the preferred approach. If you
can find some stocks with some decent balance sheets and decent price earnings
ratios, and a decent outlook with a good customer base and a sound business model,
then that again could be their preferred approach. Think about it for a moment.
Most pension funds that make up the pension industry are made up of stocks
and bonds, a combination of the two. Very rarely, do you see a pension fund made up
of foreign exchange exposure, and it is there to hedge, of course. So
stocks are generally, used for more longer-term investment. If on the other
hand, your objective is a shorter term, perhaps you're looking to supplement
your income; possibly giving up your day job altogether and become a full-time
trader, then in that case maybe Forex might be the preferred approach. And that
is for a number of reasons. First of all, I will say this, if you're trading the
stock market, there are literally, thousands and thousands of different
stocks available to trade globally, of course. If you look at the S&P, for
example, that's made up of 500 US top stocks. The Russell index made up of
3,000 stocks, and of course that's just in the United States alone. The same in
the UK and around Europe. The stock market is made up of multiple, multiple
stocks getting, a grasp, a handle on any one individual stock could be quite
difficult. You've got to do a lot of research; however, if you're inclined to
be able to do this research, if you've got the know-how, and you've got the
experience that you can analyze company data, you can analyze balance sheets, then
of course, stocks can be very very profitable. But there's a whole bunch of stocks
out there, that you need to do this work on, and this analysis on. If on the other
hand, you look at the forex market. Now the forex market it's generally made up
of say 10 different currency pairs so you can actually spend a lot less time
analyzing an individual currency pair than the vast array of stocks available
out there. But again, it does depend on personal objective, and of course the
amount of time that you can allocate to this. Also, if you are inclined to be a
fundamental trader, a fundamental trader basically looks at the reasons why a
stock or indeed a currency pair will move if you are fundamental trader that
of course trading stocks may be preferred way to go because the
fundamentals are a lot easier to potentially understand then possibly the
forex market. Certainly, if you understand how to read a company balance sheet and
so forth. If on the other hand you want to be a technical trader, then I would
suggest that the forex market might be easier. The forex market is huge. It has a
massive participation of about five trillion dollars a day, made up of retail
and of course, institutional players. Now, the other
thing that you need to consider is the ease of access. It's far easier when
starting off to access the forex market than it is the stock market. And often
people that are coming in to trading for the first time, only have a limited or
only want to risk a limited amount of money when getting going- to see if
trading is for them or not. Now, when you start trading the forex
market, you can start with just a few hundred dollars but difficult to do that
in the stock market. Many brokers won't allow you even to open an account to
trade stocks unless you have a few thousand dollars to get going.
Significantly higher than opening up a Forex account. Now, the other thing that
you have to consider is leverage. If you're starting off with just a thousand
dollars, then of course the forex market offers leverage. Sometimes, insane amounts
of leverage! Now, I don't encourage anyone to trade with insane amounts of leverage.
In the old days, they used to be able to offer 200, 500 to one. I
think that's absolutely ludicrous. Well, the video talks about this. You should be
trading leverage of really nothing more than really 20 to 1 . The recent ESMA
regulations in Europe in fact, pull down the leverage, that's permitted. But when
you trade in the forex market you have access to huge leverage, so you can start
off with just a thousand dollars. If you were trading trading 20:1 leverage,
you're basically exposing yourself to twenty thousand dollars in the market.
That's not as as easy to do when you're trading the stock market. So, you need a
higher amount of money to start with when you're trading the stocks and
certainly if you're learning then you may not want to risk a higher amount
when getting going to site; to deciding whether or not trading is for you or not.
So leverage is available in the forex market. Much more so than in the stock
market and certainly you can start experimenting with small amounts of
money, to see if you are indeed, have what it takes to be a trader. The cost of
trading, generally speaking, is cheaper in the forex market. Might just pay a
commission, small commission, and indeed, the spread . In some cases you won't pay any
commission at all,. You'll just pay the spread and it stocks, it's almost certain
you're gonna spend money on the spread as well as a decent sized commission.
Certainly more than the forex market in most cases. And if you're starting off in
trading, You know. You're deciding if this is gonna be right for you, you're finding
your feet. The last thing you want to be doing is competing against the broker with
the fees and the spreads and the commissions, as well.
Now, the forex market is open 24 hours a day. So no matter what timezone you're in,
there's always going to be a market open. Of course, not on weekends. Now, certain
times of the day will be more liquid, of course, but of course, you can trade
different currencies in different time zones to fit in with where the liquidity
is. You also fit in to your lifestyle if you've got a day job whatever you may be
a shift worker or maybe only have a few hours a day in the evening now if you're
trading the stocks for example stock markets are generally open from 8 to 4
on to the stock markets closed you can't trade so if you want to trade the US
stock market generally speaking you've got to be there when the US stock market
is open specific times now the next thing you need to consider is the
liquidity now the major Forex pairs generally have super large liquidity
certainly the Euro against the US dollar which is the most actively traded
currency pair out there this means that you can always get out of a position
whether it's for a profit or a loss without too much slippage which is
basically the difference in the price that you see on the screen to the price
that you get fill that now sometimes in the stocks certainly in the lower cap
stocks this know that this liquidity is not always there which means the
slippage could be higher sometimes you're in a position you want to get out
and you can't get out because of the quiddity has dried up so what you see on
the screen isn't necessarily what you get but on smaller accounts this
liquidity can really affect you you last thing you want to be doing is losing
money on the slippage now of course the higher cap stocks they have normally
higher liquidity but the higher cap stocks generally means that the price of
the stock is going to be higher the price of stock is higher chances are
when you're starting off in trading a smaller account you're not going to be
able to get much exposure because of the price of the stock is higher so the
quiddity is a main factor super high liquidity in the forex market
sometimes not as high liquidity in the stock market if there is high liquidity
generally the cost of the stock is higher meaning your exposure to that
stock is going to be limited now if you are inclined to be
technical trader now technical trader looks at previous price action and looks
for patterns to repeat themselves they look at charts to see what prices being
in the past to see where prices may go in the future now in my opinion and this
really is just my opinion that the technical traders are more angled to the
forex market than they are the stock market why because the forex market is
the largest market on the planet actually equates to 5 trillion dollars a
day so the key levels of support and resistance I think are more respected in
the forex market because there's many many more players than there are in the
stock market which has made me generally driven by fundamentals more so than the
technicals as I said this really is a personal choice based on objectives and
based on your character are you more likely to be a fundamental trader where
you're looking to analyze company balance sheets and looking for price
earnings ratios and looking at markets in general or are you more likely to be
a technical trader in which case I think that the forex market might be a
preferred way to go certainly if you're starting off the ease of access the
liquidity sways the Fox market all day long for me for those that don't know me
I started my trading career over 30 years ago in the city of London
standing there in the trading pits look at that guy there with all that hair
isn't that amazing for me the migration from the pits to the screens was quite
easy because of the fights market I didn't have all the knowledge about
company balance sheets and didn't have that experience for me I purely looked
at price for me trading the forex market is much more akin to trading that I grew
up with in the trading pits that's why I've chosen the forex market that's why
it gives me the best opportunity because it's something that I've grown up with
whatever choice you decide I hope you are successful as always if you liked my
video give me a thumbs up if you didn't give me a thumbs down don't forget to
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next video happy trading and good luck