December 26, 2021 by admin
Which is better, forex or stocks, is an important question.
This is true whether you are just starting out or have been trading for a while and are looking to diversify your portfolio.
So, naturally, this question has a frustratingly evident answer: it depends.
Both have their advantages and disadvantages, so it’s worthwhile to explore which advantages match with your strengths as a trader.
Especially if you’ve been having a frustrating experience in one of these areas, trying out the other might give you better results.
One of the general characteristics of currencies is that they are intended to be relatively stable.
Currencies don’t work as well if they have wide swings in value, so there is a lot of effort put in by central banks and governments to keep them from changing much over time.
Sure, there are occasions when you can have some pretty wild fluctuations. But, for the major currencies that are traded on the forex market, it’s very unusual to have more than a percentage point of change in a single day.
Stocks, on the other hand, are designed to make money. The faster they move (upwards), the better it is for everyone (except those who sold short).
Consequently, stock prices have a habit of moving around quite a lot. For stock traders, this means our brokers don’t provide us with as much margin, but we have more opportunities to make larger gains.
A corollary of the above is that stocks tend to trade a lot more based on what’s going on in a particular company.
Did it make a new sale? Was there a law passed that could affect its profitability? Did the CEO just go on Joe Rogan’s podcast and get high?
All of those things can suddenly change the way the market perceives the stock’s value. Consequently, stock traders tend to be more interested in fundamentals.
Currencies change in value mostly based on moves made by large market makers who are accommodating to broader trends. Naturally fundamental issues push the relative value of currencies in the forex market, but it’s quite possible to trade them based almost exclusively on technicals.
You can get away with not knowing who the PM of Australia is when trading the AUD.
But not following Elon Musk on Twitter when trading Tesla can be a bit risky.
Well-managed companies in the medium and long term will grow, and their stock price will go up.
This is why the long term trends of every stock index in the world has been to rise.
The long term trend gives an advantage for people who want to buy and hold over a longer period of time. When it comes to Forex, on the other hand, currencies tend to fluctuate, but generally trend towards equilibrium.
There are different cycles depending on the time frame, but in general, every central bank is trying for currency stability, which means that they are all aiming at approximately the same target.
The advantage here is that for someone looking to get in and out of the market, there are plenty of ups and downs of which you can take advantage.
So, what kind of trader are you?
Which of those characteristics match your trading strengths?
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