A Duel Between The Forex and The Stock Market

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Forex education | ttsmarkets.com

The two stalwarts in the economic market in the world are the Foreign Exchange Market and the better-known, Stock market. 

People often wonder which one triumphs over the other. In this chapter, I’m going to tell you how the Forex Market overshadows the Stock Market in terms of its size and market share.

A lot of the traders are switching over to the Forex Market due to the advantages that it provides over its competitor. However, still now, if you were to mention trading to your friends and relatives, they would immediately assume that you are talking about the Stock Market, with very few people even aware of the existence of the Forex Market. 

By now, a question might be lingering in your mind. If the Stock Market is so immensely popular and everyone knows about it, why am I recommending you to switch to the Forex Market?

Here are some reasons why many Forex traders including myself prefer the Forex Market over the Stock Market:

Open All-Day

The key point that propels the Forex Market ahead of the Stock Market is that it is open 24 hours a day. In comparison, when it comes to the Stock Market, you are restricted to the trading hours of the relative exchanges. For instance, while the New York Stock Exchange is only open for trade from Monday to Friday during New York business hours, the London FTSE on the other hand operates only during the London business hours.

In a stark comparison, the Foreign Exchange Market opens at around 8 am Sydney time on a Monday morning in Australia and shuts down around 5 pm in the evening in New York Time in the United States on a Friday. 

What this essentially means is that the Forex Market is open for trade exactly 5 and half days in a business week which is a lot more when compared to the Stock Market.

This offers an enviable opportunity to the Forex traders who do not have to keep themselves available in a specific time window. This gives the traders some leg room where they can incorporate their trading activities into their busy work schedule with ease especially if you engage in end of day trading strategies. 

A Cheaper Alternative

Unlike Stock Market brokers, Forex brokers do not levy any commissions or transaction fees for the services that they offer. Instead, they make their commissions through spread which is nothing but the difference between the buying prices and the selling price. The brokers sell the currency to you at a rate that is slightly higher than what they buy the currency for. However, compared to the Stock Market, this is vastly cheaper.

The enormous size of the Forex Market allows the brokers to offer you inexpensive spreads and still be able to make a profit from the large number of daily Forex transactions that they make. Truth be told, Forex Market is debatably the most inexpensive market to trade in the world.

In order to trade in the Stock Market, you will require a sizeable initial investment if you hope to make good profits from it. This happens due to the fact the leverage provided by the Stock Market is quite low. 

What is Leverage?

The potential to utilize your capital to manipulate a larger sum of “borrowed” capital in the market is known as Leverage.

The leverage is the part where the Stock Market lags behind the Forex Market. The Stock Market provides mere 1:2 leverage. This means is that if you open for a position at $1000, you can control $2000 with it.

By contrast, brokers of the Forex Market are able to provide a wider range of leverage choices. For example, if the leverage ratio is 1:100, you can control $100,000 in the Forex Market for just $1000. It is not a rare sight in the arena of the Forex Market to see a broker offering leverages as high as 1:500 where you can control $100,000 with just $200. 

It is Straightforward

At present, the New York Stock Exchange has enlisted approximately 2800 different stocks. This means that the traders in the Stock market have 2800 different market option to choose from. Additionally, the National Association of Securities Dealers Automated Quotations (NASDAQ) offers another 2679 stocks. The plentiful options can become confusing for the traders.

The Forex Market, on the other hand, revolves around the main currencies of the world:

  • The United States Dollar (USD)
  • The EURO (EUR)
  • The Great British Pound (GBP)
  • The Japanese Yen (JPY)
  • The Swiss Franc (CHF)
  • The Australian Dollar (AUD)
  • The Canadian Dollar (CAD)

As you can see, it is infinitely easier to keep track of just 7 major currencies rather than with thousands of stocks. 

Relatively Immune to Price Manipulation

This is a major advantage that the Forex Market enjoys over the Stock Market. The Stock Market, because of its comparatively smaller size, is more susceptible to price manipulations. The retail traders can easily be driven out of the business by the sharks in the waters, that is, the large companies who can make the prices move by buying or selling them in large quantities.  

Recommendations from analysts, small and large news events that affect the perceived status quo of the companies can also impact the stock market. 

Similarly, even rumors and small news updates can influence the Stock Market, propelling it to move steadily and rapidly in a single direction.

These problems are altogether averted in the Forex Market. Owing to its sheer size, no single company or bank can force the Forex Market to move in a specific direction, as is the case for the Stock Market. The capital required to move a currency forcefully in a single direction is beyond the economic potential of any company or bank. This is a major advantage that the Forex Market gets to bag over the Stock Market.

Only the Central bank of a country reserves the power to manipulate the prices of their home currency. Even then, they have to utilize the whole country’s economy to do just that. It often happens that the central banks deliberately peg the value of their currency or keep it low in order to boost their import and export sector, that in turn, benefits the country’s economy. The central bank of Japan adopted a similar tactic to shield the import and export sector of the country by pegging the JPY at a significantly low price. 

Zero Prohibitions on Short Selling

Traders often face short selling bans put there by the stock exchange in the events of stock exchange crashes. In these times, you are prohibited from opening a new short trade. It is a near-impossible job to find a prospective buyer for your crashing stock when the market is in peril.

Suppose you see a bearish trend in the market while you are holding stocks. Your first logical step would be to get out as soon as possible by selling off your stocks. However, it is impossible to find a prospective buyer in the midst of a crashing market.

In case you do not find a prospective buyer for your stock, you have no other option left but to sit idle and watch your money vanish from right in front of your eyes. Even if you do manage to find a buyer, you still would probably have to sell your shares at a loss. 

This scenario does not take place in the Forex Market where you can open a short position even when the market is crashing. As a matter of fact, Forex Traders can take advantage of the resultant chaos from a crashing market and make some quick bucks.

The currencies are usually traded in pairs in the Forex market. That is, you exchange one currency for another. This way, you, as a trader, are both the bull and the bear simultaneously.

Without bringing in personal biases, the facts speak for themselves. Forex Market is the clear winner when it comes to a duel between the Forex and the Stock market. The advantages offered by the Forex Market simply cannot be challenged by the latter. 

You too can become a professional part-time or a full-time Forex trader by utilizing the Bank Manipulation Trading strategies. Check out my Trading Studio membership for more in-depth information on the strategy.

The membership includes an intensive course on Bank Manipulation Trading strategy, how to utilize it successfully to benefit from the Forex Market as well as to become a member of an enriching interconnected network of capable Forex Traders.