Forex vs Stock - pros and cons of trading

According to specialists, Russian traders prefer to work on the currency market as it is more favorable for them. Meanwhile, and stock market can offer equally profitable methods of trading.

Old love

Historically foreign exchange market is more attractive for Russian traders than the futures market, let alone the stock market. This situation has developed largely due to the opinion, firmly entrenched in the minds of Russians, that practically any person who once plunged into the kitchen of currency exchange offices and Vneshposyltorg's checks (if anyone remembers even those) is able to correctly and competently assess the prospects of currency pairs movement on the world market.

Perhaps, the great popularity of the currency market is due to the powerful pressure on the consumer (in this case, on the potential client) from all kinds of brokerage companies, starting from the rather odious IFTN, which died in 1995, and ending with today's more or less civilized brokers inside the country and abroad. The purpose of this article is not to analyze the activity of brokerage companies - much has already been written about it. Our task is different - to try to analyze all of them. pros and cons of currency trading compared to stock trading.

1. Leverage

For a long time, the foreign exchange market has been particularly attractive to traders due to the application of the so-called leverageIn other words, a kind of leverage. The leverage allows to use in trading the sums several tens (and sometimes hundreds) times exceeding own funds. This circumstance at first strongly fueled the interest to the foreign exchange market. The stock market until recently offered a maximum leverage on intraday trading of 1 : 4, and transferring a position required at least 50% of its value. Thus, the seemingly undeniable advantages of trading on the foreign exchange market are obvious. In fact, these advantages are a two-edged stick - the possibility of profit maximization in this case turns into a very high probability of losing your own funds. But this is not the point - recently many Western and Russian brokerage companies have begun to offer their clients trading on the stock market with the use of leverage (using CFDs), similar to that used on the currency market, but smaller in size. And taking into account the ratio of leverage and stock market volatility this fact should do more to increase interest in shares than the margin on FOREX.

2. Predictability

Whatever the adherents say fundamental analysis, today. technique occupies the first place when making a decision to make a transaction on the market. From the point of view of technical predictability, the stock market, in our opinion, can give a hundred points ahead of the currency market. Indeed, most of the methods and principles of technical analysis were developed for the stock market (and, of course, for the commodity market), and if we remember that the currency market is the youngest of the existing ones, our statement about predictability becomes clear. Moreover, the currency market due to its global nature can not always be analyzed correctly using technical indicators. In fact, under one currency market it makes sense to understand several currency sessions that differ significantly from each other - European, American, Asian-Pacific. It is because of this division that the use of the same indicators may not lead to the required result. When trading in shares, be it American or European corporate securities, a trader is always strictly tied to the session. And it has a strictly fixed beginning and end (except for very rare force-majeure cases).

3. Versatility

Versatility here means the possibility of not making trading on the market your main occupation. That is, you can have your own business (or job) and trade on the market in your spare time at the same time. Those who tried to do the same on the currency market quickly realized that it is impossible, because the round-the-clock nature of the market leads to the necessity of constant presence on it. Due to the reasons described in item 2, it is the stock market that allows combining trading with other activities. Although I would like to note that the market is still the domain of professionals.

4. Possibility to hedge positions

One often hears that it is the session nature of the stock market that makes it impossible to lock in a result or cut off losses in time. This statement is true, but only partially. It is not by chance that the futures market was mentioned at the very beginning of the article, which, in our opinion, can serve as an almost ideal one an instrument for insuring open positions in the stock market. This is due to the same all round trading in the futures market. Moreover, for traders who are looking for an opportunity to insure their futures transactions, there is a great opportunity - a stock market traded contract on QQQ stock, which is actually the equivalent of NASDAQ. Naturally, both the currency and stock markets find their adherents and admirers.

I did not aim to denigrate the currency market and embellish the stock market, but only, as emphasized in the beginning of the article, tried to compare the pros and cons of trading on one or another exchange or OTC platform.