Should You Trade Forex Or Stocks?
Deciding whether to trade stocks, foreign exchange or futures contracts typically comes down to risk tolerance, account size and convenience.
The forex market is the world’s largest financial market, accounting for more than $4 trillion in average traded value each day. Traders like its high liquidity, round-the-clock trading, and the leverage it affords, which can be as high as 50-to-1. Stocks usually offer leverage access of only 2-to-1.
Blue chips are stocks from the strongest established companies. They earn profits even during bad times, and consistently pay dividends. They’re generally less volatile, and provide portfolios with steady growth potential.
Many short-term traders rely on volatility to profit from quick price swings. They’re the ones that are attracted to the forex markets. Buy-and-hold investors usually prefer blue chips.
Trading hours are also important to consider, because stocks are limited to exchange hours, usually 9:30 am to 4 pm. EST Monday through Friday. But Forex markets are open from Sunday night to Friday night.
Products that provide exposure through market indexes, like exchange-traded funds, are widely traded, as are stock index and e-mini index futures. E-minis, which are electronically traded futures contracts that represent a portion of the normal futures contract, are liquid and volatile. They’re not traded as much as the volume seen on the forex markets, but e-minis offer short-term traders many similar perks, and they’re popular instruments.
If an active trader is not available during regular market hours to conduct and manage trades, stocks are not the best idea. But if an investor’s strategy is to buy and hold for the long term, generating steady growth and earning dividends, stocks make sense. Regardless, it should come down to the right fit.
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