Many beginner traders wonder which market better to choose. Whether it will be Forex trading or stocks, futures, CFDs, binary options or any other market.
As a Forex trader, I decided to compare all of them and to make conclusions about their difference.
Forex vs Stocks
First of all, people wonder whet is better, Forex or stocks. The main difference between these two markets is the number of trading assets. Forex market includes 4 major pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF), 3 comdolls (USD/CAD, AUD/USD, NZD/USD), cross currencies and exotic pairs that can differ from broker to broker. Stock market contains thousands of different stock and ETFs, each of them has its economic past and future, so a stock trader has to perform fundamental analysis perfectly.
2. Trading platforms is the second thing. Traders use quite complicated platforms for shares trading (Thinkorswim, Sterling Trader, Fusion and others). A newcommer may need a plenty of time to master all features of a trading platform. Moreover, a trader will pay more, as the majority of this trading software are paid. You’ll also need to subscribe to websites newsletters about stocks (finviz, briefing, etc). Forex analytics can be found for free, that’s why it is one more plus, if you still think what to choose, Forex or stocks.
3. Trading conditions differ a lot because of the high liquidity on Forex. Thanks to this fact, we can work with low margins and high leverages, while stocks require much investments and offer 1:10 leverage mostly (for intraday trading). A broker usually reduces the leverage to 1:2 for overnight transferring. Anyway, you should always control your risk and remember about risking just 3% of your overall funds for every trade.
4. Trading hours are measured on the stock market as sessions are limited to the exchange hours (from 9:30am to 4pm Eastern Standard Time). Forex works 24 hours per day from Monday to Friday every week, so we can trade even at night, if we want to. If trading is your additional source of income or a hobby, try using mid-term strategies. They don’t require much time or tie you to a certain period.
These were four reasons why I’ve chosen Forex trading, while I was deciding whether I’ll work with Forex or stocks. And now let’s go further.
All in all, I have nothing against the stock market and it gives really great trading opportunities. But as for me, novices better try trading on Forex as it is easier.
Forex VS CFDs
I can say that CFD is a part of the Forex market. CFD (contract for difference) is a financial instrument that consists of a fixed asset and a trader gets (or loses) money because of it’s price changing. Different financial instruments can be fixed assets: shares, stock indices or commodities (precious metals, oil, etc).
The main difference between a CFD contract and a stock is the fact that the property rights are not given from seller to buyer while the transaction. And it is logical that a CFD owner doesn’t have the right of getting dividends, or participation in the shareholders’ meeting. They also differ from stocks by an easier trading platform and more possibilities for trading.
But what about differences from Forex trading? Here they are:
1. The CFD trading is more diverse than the Forex one. It works with indices, energy, metals, and many other things. You can choose an asset depending on the country and other economic factors. On Forex we choose two currencies, one against the other, and earn on their growth or fall.
2. These two markets have various natures. CFDs are influenced by supply and demand for an asset or a trend change in some business sector while Forex is influenced by global events and politics.
3. Understanding of the CFDs market can be not so smooth for beginners, as it is influenced by a plenty of factors that you have to know. When we talk about the quick start, learning CFD trading may take much more time than Forex trading.
People often say “Keep it simple”. Following that advice, I’ve chosen Forex trading and don’t have plans to trade CFDs now, but I want to dive deeper in this sphere when I have more free time.
Forex VS Options
I bet that all of you have heard about binary options, as they were very popular recently. Still, I don’t trade them, cause they seem to be very alike to gambling. Why is it so? Here is the answer!
1. When we talk about the Forex vs options battle, we have to remember that trading binaries is very alike to the roulette in casino. You have to predict whether an asset will grow or fall. If your forecast is right, you receive twice more money. But if you are wrong, you lose them all. Let’s look at an example. You’d bet $10 that EUR/USD will grow and you’d get $8 for the right forecast. But if it fell, you’d lose your $10.
You can use the same types of analysis that you use on Forex, but losing rate may grow drastically because of ‘roulette nature’ of binaries themselves.
2. Making money with binary options. A trader has to be near his monitor every minute and he much trade very actively. This is very stressful and controlling emotions will be too difficult for newcommers, all these factors may lead to a total deposit loss. On Forex, we can use pending orders or trading robots to do less manual work and to earn more. The binary options market doesn’t give traders such an opportunity.
I think that it’s nearly impossible to predict the asset movement very accurately (unlike we do it in the Forex trading). But making that in certain time limits is senseless. The market is often flat and in the process of consolidating. We should give the price a chance to “breathe”. The most important thing is sticking to the rules of your trading system and control risks. In the Forex trading, it can be done easier than here.
Anyway, both of this markets work online and allow to start with minimum capital. Still, I personally choose Forex trading in the ‘Forex VS options’ battle, as it’s more logical, more professional and more profitable, of course!
Forex VS Futures
Futures are very alike to Forex and many traders even can be surprised that it’s not so complicated as it seems. Now I want to tell you about the differences between these two and peculiarities of futures and Forex trading.
1. Guaranteed limited risk on Forex. The first thing I can mention about futures market, you can go to the negative level as here are no margin calls. On Forex, on the contrary, you won’t lose more than you have on your deposit. Forex trading platform closes all positions for you if you are tremendously losing.
2.Liquidity. While Forex market can boast more than $5 trillion per day, futures take only $30 billion. So, their liquidity is strictly limited. If the market stands still, you won’t be able to earn much. But in Forex trading we always can get profit by switching a currency pair to another one.
3. There are three types of margin on the futures market: initial, maintenance, daytrade. You can see the maintenance margin for every asset on the CME website. On Forex, there are no limits for your margin, you can trade even with $5! You need minimum $2000 capital for trading futures. Not every trader can afford such deposits at the very beginning.
My overview is very brief and common, as I didn’t want to fill my article with much unnecessary details. But the moral is obvious. Forex trading is the easiest one and very profitable. Moreover, it fits newbies the most, cause learning how to trade on Forex is much easier than on other markets.