Tens Ways in Which Forex Trading is Superior to Playing the Stock Market

English: A view from the Member's Gallery inside the NYSE (Photo credit: Wikipedia)

James Sheffley fancies himself a Jack-of-Some-Trades in the finance game. After graduating from the University of Chicago with a degree in economics, Sheffley began his incredibly lucrative career writing for e-econ blogs. As a sideline, he enjoys a marginally successful career as a stock and forex day (and night) trader. When not firmly ensconced behind his keyboard, Sheffley can be found following in the footsteps of his hero, Sudhir Venkatesh, tracking underground economies.

When the average self-respecting, cash-hustling, prospective Master of the Universe considers or mentions “playing the market”, chances are excellent that the market being referred to starts with an “s” and ends with a “tock”. And for laymen, “play”-able markets that aren’t the stock market are rarely, if ever, considered. That’s an unfortunate state of affairs, because the foreign currency exchange market (Forex) is in many ways superior to the stock market as an investment opportunity for average people. How so? Well, read on.

1. You Don’t Have to Worry About Middlemen

One of the primary benefits of forex trading is the trader’s ability to do so without a proxy. Traders, from hobbyist amateurs to seasoned pros can interact directly with the currency pairs being traded.

2. Saving Money on Every Trade

And what is perhaps the chief benefit of bypassing those middlemen (or middle-women)? Saving money. There are no commissions that need paying, no exchange, governmental fees and generally not even a cut from your pocket to a retail trader if you use one. Those guys are generally paid via the bid/ask spread.

3. Forex Offers Greater Liquidity than the Stock Market

The stock market is big- about $22 billion is traded on the NYSE a day. That’s not chump change. The currency market, however, is roughly 2500 times bigger than that. That’s $5 trillion a day. That’s “trillion” with a “tr”. With that much money being traded, you’re pretty much guaranteed to have someone on the other end of your currency trade willing to buy what you’re selling or vice versa. That’s definitely not the case with the stock market. 

4. The Market that Never Sleeps

When the closing bell rings in New York, the stock market slows down significantly. Not entirely of course, but significantly. However, the currency market is pretty much a non-stop party. There are certainly times when that party is particularly jumpin’- when the Forex markets in New York and London overlap, or those in London or Tokyo, you get some hotspots. However, even in the middle of the night for you, that guy on the other end of your currency exchange in Kyoto, Japan or Sydney, Australia might have just had his first cup of coffee.

5. There Are No Fixed Lot Size

The non-Forex market which perhaps most closely resembles Forex in the way it operates is the futures market. (I have a lot to say about Forex vs. futures). Those futures are purchased in lots, like 100 ounces of gold for instance, and there are futures contracts that determine the size of those lots. Not the case with Forex. You can trade with $25 or $25,000,000.

6. No Cornering the Market

Another benefit of the currency market’s incredible size is that no one (or more) facet of that market can be “cornered” by a very wealthy person, collective, corporation or even giant bank. Cornering a currency market would pretty much be the literal equivalent of buying a country.

7. Begin Trading with Less Money

Just like that more monetarily liberal lot-allotment can facilitate trading with less capital at your disposal, it also allows an entry into the market for less wealthy people. Currency trading, more so than stocks, can be accomplished without risking large sums of money. That means a lower “barrier to entry”.

8. Great Leverage

You may be asking, “Great, so somebody can open a forex trading a count with as little as $25. Why would anyone want to trade with $25?” Well, the answer is a two-parter. Part one: leverage. Forex brokers can, to a large degree, determine their own leverage ratios- like 50-1 for instance. So while $50 could net you $1250 in trading funds, kicking in $1000 or $5000 starts adding up to real money.

9. Real Time Preparation and Free Stuff

Another excellent bonus of the whole Forex-trading sphere are the free preparatory tools, demos and perks offered by the forex brokerage services. Demo accounts, forex tracking in real-time, forex news and more, all of which can be had for free. And not only is it convenient to take advantage of those tools, anyone planning on forex trading should get themselves a demo account and be consistently making (virtual) money before they start playing with real dough.

10. All of This Makes Forex Trading More Democratic

Demo accounts, a lower necessity-threshold for middlemen; a reduced or nonexistent threat of getting entirely rolled in some market-cornering coup; lower barriers to entry; the lack of fees, commissions, government taxes, etc.; far greater liquidity and the other benefits to forex trading both mentioned and missed here, all contribute to foreign currency market’s greater availability to the average consumer than the stock market.

Good luck and good trading.