Forex is the largest market in the world. So, does this mean it has the most number of currency pairs to choose from? Well, that’s not the case.
On the New York Stock Exchange, there are about 2,800 stocks listed. And on the NASDAQ there are another 3,100 stocks listed.
While in the forex market, there are only a couple of dozen major currency pairs which is traded by the market players.
However, people still prefer the Forex market over the stock market because it is easier to stalk a limited number of pairs than a ton of stocks.
Similarly, there are numerous other advantages of the forex market when compared to the stock market.
Below are some of the benefits of trading Forex over stocks.
Forex is a 24-hour market which is open throughout the working days (Monday to Friday). So, no matter in which part of the world you are located, you can always trade according to your own schedule.
On the other hand, the stock market is open only 7-9 hours a day. This can be challenging for part-time traders to get their hands on the market.
Low or No Commission
The forex brokers provide typically do not charge any commission fees or such. However, they do levy money from spreads, which is pretty minimal.
But, in the stock market, there are several different types of charges imposed on the clients.
Provision to Participate in any market
In forex, there is no bias between buying and selling. One can go long or short according to the structure of the market.
While in the equity market, there is a restriction on short selling. Hence, this reduces trading opportunities for traders because they can participate only in rising markets.
Centralised exchanges provide great advantages to traders. However, it does not solve the problem of the involvement of middlemen.
The existence of intermediaries between the trader and the buyer or seller of the stock will result in a fee to be paid in terms of time or money.
But, the spot forex market is decentralised, which means there are no middlemen as such between the trader and the buyer/seller. This also means that quotes can vary from different forex dealers.
The competition between currency dealers is so intense that one can get the best price almost every time. Moreover, the cost gets cheaper, as well.
The forex market cannot be controlled by a single individual
The foreign exchange market’s size is so huge that nobody can dominate a particular currency on their own. Banks, hedge funds, and other large financial institutions are just participants in the market who provide exceptional liquidity.
While the stock market, on the other hand, is vulnerable to massive buying and selling by large banks and funds.
Having said that, can we conclude that the Forex Market has the upper hand over the Stock market? Of course not.
Above are only some the benefits of trading the Forex market over the Stock market. However, the Stock market too has plenty of advantages with it. Below are a few advantages of the Stock market one must make a note of.
Long term gains
One of the most significant advantages of the stock market is that it offers a stable income in the long term. Whereas, in the Forex market, it is very challenging to predict the long term trend of a currency. Hence, if you are an investor, who is looking for a stable passive income, then the stock market is the way to go.
Another benefit of investing in stocks is that it provides income in the form of dividend as well. Even if the stock has underperformed, you are sure to get these payments. Hence, dividends can exceptionally help grow your investment portfolio.
As mentioned, there are 2,800 stocks in the NYSE and around 3,100 in the NASDAQ. So, investors can put their money into different sectors and different stocks and diversify their portfolio. By this, even if one sector loses its value, the other sectors can help cover it up.
With consideration of the benefits provided by Forex and the Stock market, we can conclude that selecting the best market entirely depends on the type of trader/investor you are.
We have listed out the advantages of both the markets. It’s all on you to decide which market works the best for you. Therefore, the upper hand varies from trader to trader.