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Oct 16

Advantages Of Trading Forex Over Stocks

Reading Time: 3 mins

The first thing that comes to many minds when someone mentions the words ‘trading’ or ‘investing’ in the markets is more than likely the stock market. Whether you’re in the USA, Canada, Europe, or any other eastern nation, stock market investing and those derivatives closely related to it hold the top spot as the most common form of investing.

Despite its legitimacy and somewhat monopolistic position at the top of the investing food chain, there are other forms of investment that are a viable option to add to your portfolio, with some holding advantages over others.

Alternative investments come in many forms, with some of the most popular perhaps being futures and cryptocurrency in 2020. Not to be forgotten though is Forex (foreign exchange) trading, which has been on somewhat of a bull run lately in terms of its popularity increase.

Forex may be one of the most lucrative alternative investments, which makes it all the more important for prospective investors to learn about. Thankfully, there are many resources, like ForexToStocks and others, one can use to widen their knowledge about Forex.

 

What Is Forex Trading?

Forex trading refers to how currencies are exchanged from one to another. It’s how you convert your Chinese Yuan to a US Dollar or your Indian Rupee to a Euro for your trip to France. This may seem like a routine transaction for travelers, but it’s much more than that for forex traders.

Different nation’s currencies fluctuate in terms of their value relative to one another. At the time of writing, the Chinese Yuan is worth about 15% of a US Dollar, which is sitting at 0.15, and the Rupee is worth not much at all–0.014 of a dollar.

This means you would need roughly 100 Indian Rupees to have the equivalent value of one USD, and about six and a half Chinese Yuan to do the same.

This presents itself as an investment opportunity. If the value of the Chinese Yuan were to dip to 10 cents in its value relative to the dollar, then you can now purchase 10 Chinese Yuan for 1 USD, whereas before you’d have been able to buy 6.6. If you play your cards right and purchase this Chinese Yuan as it’s dipped, and convert it back to USD after having risen back to say 0.15 cents on the dollar, you’ve just profited 5 cents per Yuan. You can see how this would be multiplied with a larger purchase.

This is a great opportunity similar to that of penny stocks, and day-trading, but perhaps with less inherent risk due to the necessity of a nation’s currency, making it a pleasant investment for beginners.

 

Why Would You Want To Trade Forex Over Stocks?

The forex market provides several advantages over your typical stock market investing. Below are some of the most prominent reasons:

  1. The Forex Market Is Open 24/7

Currency is constantly being exchanged, unlike stock markets, which tend to open in the mid-morning hours and close early in the afternoon. With these limited hours, you have to deal with overnight speculation and the chance of after-hours buy and sell requests, affecting your investments. This is especially noteworthy for day-traders.

  1. Limit Its Investors With The Infamous PDT rule

You qualify as a PDT (pattern day trader) if you make more than three-day trade transactions within a five-day period, and a day trade simply means opening and closing (buying and selling) a position on the same day.

Once this mark is hit, your brokerage account will be limited and not allowed to conduct transactions for a certain period, that is, unless you have over $25,000 of liquidity in your account.

This is something investors can work towards achieving if they’re not yet financially able or aren’t comfortable with committing that much in liquid assets to their accounts. With forex trading, this won’t be a problem.

  1. A Bit Less Diverse

The stock market is overflowing with investment options, with around 3,800 available on the market today. Forex, on the other hand, comes with 128 currency pairings to trade on. This makes discerning between investment options much easier for forex investors, with a few high-quality currency pairings to choose from.

 

Conclusion

Every investment opportunity comes with its own inherent pros and cons. Some of those cons are associated with speculating on the future. However, the risk is always reduced through education, and the resources from which beginners can learn from are aplenty.

Take the time to learn on your own before getting started, find the right certified forex brokerage, and start slowly.

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