When most people think about modern economics, the first thing that comes to mind is a stock exchange, rather than Forex markets. The reason is that stock exchange has been around for much longer, so stocks have received huge attention and publicity from the media and the entertainment industry, and people generally thought higher of them.
The Pros of Equities
If sheer size and scope of available trading options is a factor, the equities with their seemingly endless selection of financial products trumps fairly large – but still finite – choice of possible currency pairs of Forex markets. Of course, another way to look at this is to consider limited number of currency pairs as an advantage, as it limits the possible outcomes and avoids unnecessary distractions. The number of trading alternatives of equities is numbered in thousands of different stocks, while most Forex traders focus on basic currency pairs – both “major” and “commodity”, plus “cross currencies” (currency pairs that do not involve the US dollar during the conversion). In the past, the US dollar was often used as a medium in foreign currency exchanges: one currency would get converted to US dollars, and then those would get exchanged for the other currency in the pair; this is no longer the case, but it certainly did not contribute to the growth of Forex markets. Another advantage Forex markets offer is that it is far easier to keep up with current events and prices, as they only have to focus on seven or eight countries and their major events. With stocks, there is a myriad of factors that can affect or outright ruin any possibility of profit.
The number of options is not the only factor at play. In terms of liquidity, Forex markets are far ahead of any equity market in the world. Stock markets have their own cycles and rates, so it can be hard to open and close positions whenever you need to. Furthermore, trends are more far-reaching so it is extremely hard to profit under adverse conditions in equity markets. Forex markets offer chances for profit regardless of general conditions, declining markets or negative trends. Short-selling is far easier and no uptick is needed before selling. The lack of an uptick is not always a good idea, either, as it enables traders to deliberately force prices down without restraint. Stock markets had it for a reason, and it got reintroduced in 2010, albeit with some changes.
Forex also offers advantages in terms of higher leverage and lower margins. Forex traders’ margin may require only 1% of their trade, while stock traders need as much as 50%. Not to mention that stock brokers charge far more than Forex brokers, such as the industry leader HotForex, for their services.
If this was a match, Forex markets would beat equities 2:1. However, since this is not the case, it is up to individual traders to choose their winner.