The forex (foreign currency exchange) market is the largest and most liquid
financial market in the world. The forex market unlike stock markets is an
over-the-counter market with no central exchange and clearing house where orders
are matched.
Traditionally forex trading has not been popular with retail traders/investors
(traders takes shorter term positions than investors) because forex market was
only opened to Hedge Funds and was not accessible to retail traders like us.
Only in recent years that forex trading is opened to retail traders.
Comparatively stock trading has been around for much longer for retail
investors. Recent advancement in computer and trading technologies has enabled
low commission and easy access to retail traders to trade stock or foreign
currency exchange from almost anywhere in the world with internet access. Easy
access and low commission has tremendously increased the odds of winning for
retail traders, both in stocks and forex. Which of the two is a better option
for a trader? The comparisons of retail stock trading and retail forex trading
are as follows;


Nature of the Instrument The nature of the items being bought and sold between
forex trading and stocks trading are different. In stocks trading, a trader is
buying or selling a share in a specific company in a country. There are many
different stock markets in the world. Many factors determine the rise or fall of
a stock price. Refer to my article in under stock section to find more
information about the factors that affect stock prices. Forex trading involves
buying or selling of currency pairs. In a transaction, a trader buys a currency
from one country, and sells the currency from another country. Therefore the
term "exchange". The trader is hoping that the value of the currency that he
buys will rise with respect to the value of the currency that he sells. In
essence, a forex trader is betting on the economic prospect (or at least her
monetary policy) of one country against another country.



Market Size & LiquidityForex market is the largest market in the world. With
daily transactions of over US$4 trillion, it dwarfs the stock markets. While
there are thousands of different stocks in the stock markets, there are only a
few currency pairs in the forex market. Therefore, forex trading is less prone
to price manipulation by big players than stock trading. Huge market volume also
means that the currency pairs enjoy greater liquidity than stocks. A forex
trader can enter and exit the market easily. Stocks comparatively is less
liquid, a trader may find problem exiting the market especially during major bad
news. This is worse especially for small-cap stocks. Also due to its huge
liquidity of forex market, forex traders can enjoy better price spread as
compared to stock traders.



Trading Hours & Its Disadvantage to Retail Stock Traders Forex market opens
24-hour while US stock market opens daily from 930am EST to 4pm EST. This means
that Forex traders can choose to trade any hours while stock traders are limited
to 930am EST to 4pm EST. One significant disadvantage of retail stock traders is
that the stock markets are only opened to market makers during pre-market hours
(8:30am - 9:20am EST) and post-market hours (4:30pm - 6:30pm EST). And it is
during these pre-market and post-markets hours that most companies release the
earnings results that would have great impact on the stock prices. This means
that the retails traders (many of us) could only watch the price rise or drop
during these hours. Besides, stop order would not be honored during this times.
The forex traders do not suffer this significant disadvantage. Also, a stock
trader may supplement his/her trading with forex trading outside the stock
trading hours.



AffordabilityIn order to trade stocks, a trader needs to have quite a
significant amount of capital in his account, at least a few tens of thousands
in general. However, a forex trader can start trading with an account of only a
few hundreds dollars. This is because forex trading allows for higher leverage.
A forex trader could obtain larger transaction compared to stock market. Some
forex brokers offers 100:1, 200:1 or 400:1. A leverage of 100:1 means that a
US$1k in account could obtain a 100 times transaction value at US$100k. There is
no interest charge for the leveraged money. Stock trading generally allows for
not more than 2 times leverage in margin trading. There are interest charges
associated with margin trading.



Data Transparency & Analysis OverloadThere are thousands of different stocks
in different industries. trader needs to research many stocks and picks the best
few to trade. There are many factors that affect the stock prices. There are
much more factors that may affects stock price than foreign currency exchange
rates. The forex traders therefore can focus on few currency pairs to trade. On
top of that, most data or news affecting currency exchange rate are announced
officially, scheduled and in a transparent manner. Retail forex traders
therefore have better chances of success than retail stock traders.



Bear/Bull Stock Market Conditions Forex traders can trade in both way buying or
selling currency pairs without any restrictions. However, stock traders have
more constraints to trade and profit in bear market condition. There are more
restrictions and costs associated with stock short selling. In a bull market
when the economy is doing well, stock traders have a high chance of
profitability if they buy stock first then sell it later. Savvy forex traders
however, could operate in all market conditions.



Trending Nature of Currency Major currencies are influenced by national
financial policies and macro trends This national financial policies and macro
trends tend to last long in a certain direction, either in monetary expansionary
(rate cutting) or monetary contractionary cycle (rate hiking cycle). Stock
prices however tend to fluctuate up and down due to many factors, many of these
factors are micro and specific to the stocks. Therefore forex traders can better
exploit the trends in foreign currency markets that stock traders in stock
markets.



RegulationGenerally, most major stock markets are better regulated than forex
markets. Therefore, traders need to be aware of this difference to stock
markets. Fortunately, there are however many reputable forex brokers in the
market. With prudence and proper research, it is not difficult to find a
suitable reliable forex brokers.

Based on the above few points, forex trading seems to be a better trading option
than stock trading, especially during these uncertainties in the global economy.
During bull market condition, stock trading could be a viable alternative. A
stock trader should definitely seriously consider supplementing their trading
with forex trading. Forex trading enables a stock trader to exploit any
opportunity arises during non stock trading hours, by trading in forex trading.
Forex trading would also enable the stock traders to understand a more complete
big picture of world economies operations and further enhance their stock
trading skills.

How To Become A Successful Forex Trader: http://fxatrnde.key.to/