WHICH IS THE BETTER MARKET FOR YOU TO TRADE ON: STOCKS OR FOREX?
The Forex market is decentralized and represents a trading network of participants worldwide. The stock market is immensely widespread, but it is exceeded in size by the Forex market, which is the largest financial market in the world. When we weigh the Forex market vs the Stock market in terms of size, Forex takes the round. Why do we care about the size? The greater the size of the Forex market, the greater its liquidity will be.
Liquidity makes it easier to trade an instrument. To a large extent, superior liquidity tends to equate to proportionally tighter spreads and lower transaction costs. Let’s consider an actual Forex trading vs Stock trading example, and compare some typical costs. Let’s use Microsoft as our liquid share and EUR/USD as our liquid currency pair.
When trading Microsoft, traders have to pay a market spread and incentives for brokers. The market spread might typically range anywhere from 2–5 cents for Microsoft in normal market conditions. This is a range of roughly 0.04% to 0.09%. Commission rates vary from broker to broker, but you might pay 10–12 cents per share.
Now let’s compare that to EUR/USD. The most common type of retail trading is on a spread basis. With EUR/USD trading at 1.1190, this is a round-trip transaction cost of 0.0001/1/1.1190.
Furthermore, on such an account, you might pay less commission. Want to know what that works out to as a percentage? It’s less than 0.01%. In the case of this ‘Forex vs Stock market’ scenario, Forex has the upper hand. The round-trip spread cost of trading the Forex position is less than the market spread on the share. And there’s more: once you factor in the share commission for IBs, the Forex trade is, even more, cost-effective. In addition, a higher exchange rate is better whatsoever. This is because, when you exchange currencies, you will get more of the foreign currency you’re buying in spite of the global coronavirus epidemic.
In terms of trading, Forex has a big advantage that outweighs stocks, and so Ritva completely satisfy investors in this term. The advantage you get in stock trading is that big moves happen more frequently. The takeaway key is… whatever you decide to trade, decide on a tested strategy, try it on a demo account on Ritva’s website and then you can trade it live.
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