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Should you trade forex or stocks? Which market provides today's best opportunities? What are the main differences
that makes one of these to stand out? Be ready for a surprise!
Forex Trading System
Trading the forex spot market has been around for a long time. However, it is only in the last few years that it has become popular and
accessible for the small independent trader. Most traders are used to mainly trading stocks and some trading futures. Most of the existing
books on the subject of trading are geared towards these two markets simply because these two markets have been accessible to individual
traders for a much longer time. Being this the case, not a lot of education exists regarding this new and exciting trading opportunity and thus
arises the question which market provides better opportunities for the active trader.
Again, and as with many other issues related to trading that I write about, there is no black and white. I think it very much depends on the
type of trader you are. However, in my opinion there are four important characteristics that might make forex trading more attractive to some
traders.
Forex Trading Opportunity
First and most important, you have fewer markets to look at and analyze. The US stock market alone has around 10,000 actively traded stocks!
This means you can concentrate on only a few currency pairs and you do not have to jump from one stock to another waiting for that good
trading opportunity.
Currency Pairs
Second, the volatility and daily ranges. For a trader volatility and large daily ranges are what brings opportunity. The most active currency pairs,
or as they are referred to in the industry "the majors", have constant reliable volatility and large daily ranges. Not every single day of course,
but with enough consistency as to make this a reliable factor to base your trades / trading system on.
This is different with stocks. As a stock trader you constantly have to scan for opportunity. Naturally, this prevents you from being able to
constantly rely on volatility and large daily ranges.
Forex Brokers
Third, many forex brokers will almost always guarantee your stop loss and limit orders. This is a great feature. Less slippage means better fills,
more profit, and fewer headaches; specially if you are a day trader!
Forex Market
Fourth, when you trade US listed stocks you are bound by the up-tick rule when shorting. This can be a major problem causing you to suffer
slippage in most cases. Not so in the forex market. Currency traders are not restricted by the up-tick rule. This means that when wanting to
short, the price you see is the price you can get (of course, depending on how good your broker's execution of orders is).
In conclusion, it seems that forex trading has brought some opportunities that are harder to find when trading stocks. I think that the above
are very important issues to consider but again: it all depends what type of trader you are. That is the basis and the starting point. For example,
some people don't mind the fact that they have to constantly scan the market for good stock trading opportunities. For them, the more stocks
the more probability for an opportunity that fits their stock trading system or systems.
Trying, looking, testing and analyzing. That is our job as traders!
I wish you all the best in your forex trading projects.
Avi Frister
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