There are several reasons that make investors choose Forex trading over stock trading. For beginners, the Forex market is the largest in the world in terms of daily transaction volume, and is almost the most liquid. This market is highly accessible because it is open 24 hours a day, and investors interested in forex trading can benefit from a much larger leverage than they can through stock trading.
Key factors that make Forex a global market
The world's largest market
Global market participants trade over 5 trillion dollars of currencies daily, according to the Bank for International Settlements (BIS). [1] The average daily trading volume was 5.1 trillion US dollars in April 2016, according to the triennial survey of the Bank for International Settlements, which is the most comprehensive survey of its kind. [2]
While this 5.1 trillion US dollar figure (or approximately 213 million US dollars per hour) may seem high, it is less than 5% of the record 5.4 trillion US dollars reached in April 2013, according to the Bank for International Settlements.
For comparison, consider the following information:
The average daily trading volume for the New York Stock Exchange was 38.5 billion US dollars during the first five sessions of May 2017.
The average daily trading volume on the Nasdaq was approximately 85 billion US dollars during the first four sessions of the same month. While the daily trading volume for the Forex market exceeds 5 trillion US dollars, the US dollar accounts for nearly 88% of total trading volume, according to additional numbers from the Bank for International Settlements. [5] Thus, the daily dollar trading volume rises to more than 4 trillion US dollars. One of the main benefits of owning a larger market is that it makes it difficult for individual traders and institutions to engage in price manipulation, which can cause securities to experience sharp price swings in short periods of time.
Strong liquidity
Since the global Forex market is very large, it provides traders with great liquidity, which is the ease with which traders can exchange one asset for another. In this case, the large volume of the Forex market makes it easy for traders to enter and exit positions with ease.
In addition to giving traders a greater ability to maneuver, high liquidity can help provide them with lower transaction costs, as financial institutions charge lower fees to set up trades. High-liquidity markets can also help protect traders from price manipulation.
When a market enjoys high liquidity, it can easily handle large increases in trading volume without undergoing significant price changes, making the market less susceptible to sharp changes in trading volume aimed at causing price volatility.
Available 24 hours a day
One of the main attractions of Forex trading is that the currency markets are open 24 hours a day. Investors around the world want to trade currencies. Companies demand currency for international trade, and central banks have benefited from foreign currencies since 1971, when the value of most currencies began to "float".
Fortunately, there are brokers - including banks, intermediaries, traders, and other financial institutions - in many different cities to help serve this demand. For individual traders, 24-hour access simply means more options.
Investors will find it much easier to combine this type of trading with part-time or full-time work. For example, if a person works in a traditional full-time job between 9 am and 5 pm in their time zone, they can trade after leaving work.
Significant Leverage
Traders may trade Forex instead of stocks because when trading the former, they can get much larger financial leverage. By borrowing money to make trades, investors can enjoy stronger returns.
For example, if a trader has access to a 400:1 margin, they can trade with a value of 4,000,000 British pounds with only a 10,000 British pound margin. As a result, they will only need to reduce 0.25% of the deal as a margin. While following this approach can provide traders with stronger returns, they should keep in mind that leverage is a double-edged sword and can also significantly magnify losses.
As a result, traders would benefit from consulting a financial advisor or other qualified financial professionals before using leverage.
Summary
As illustrated, there are many reasons that make investors choose Forex trading over stock trading. Through Forex trading, investors can access a much larger market than the stock market. Due to its size, the stock market provides greater liquidity, which means investors may be able to enjoy lower transaction costs and easier entry and exit from deals.
The Forex market also provides traders with more flexibility than the stock market. Being open 24 hours a day, investors can more easily combine Forex trading with other responsibilities. Finally, the Forex market offers larger financial leverage than the stock market, a factor that can lead to amplifying gains as well as losses.
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