Forex vs Stocks: Which is More Profitable?

The question of the day is: forex vs stocks: which is more profitable?

Forex and stocks are two of the world’s largest financial markets. If you’re interested in trading, chances are you’re going to end up trading both of them for a period of time.

The big question is: which one is best?

The stock market has been around the longest, so many people consider it the logical choice.

In comparison, forex is the single largest financial market in the world. That means there’s lots of opportunities to make profit.

But which is more profitable?

Forex vs Stocks: Which is More Profitable? 

Unfortunately, there’s no one-size-fits-all answer to this question. Forex has some strong advantages over the stock market.

But it also depends heavily on personal preferences.

When do you want to trade?

How often do you want to trade?

And last but not least, which one do you find more interesting?

Money can be made (or lost) in both forex and the stock market. And there’s no shortage of wealthy people who trade both markets. So, if you’re wondering, ‘forex vs stocks: which is more profitable?’, here are five factors that you should consider…

Trading hours 

The major difference between forex and stocks is when you can trade them.

Forex can be traded 24 hours a day, on weekdays. You can’t trade forex or stocks on the weekend.

In terms of forex, some hours are better than others. For example, it’s often considered best to trade when the market is most active. But there’s no rule that says you have to follow this idea.

Stocks are a different story.

When you can trade depends on the opening hours of that exchange. For example, US stocks are primarily traded between 9.30 a.m. and 4.00 p.m. EST.

But if you’re a losing forex trader, all that extra time isn’t going to make you more profitable. On the positive side, forex’s trading hours give you more flexibility. For example, if you have a full-time job and want to trade in the evenings, forex is the logical choice.

Liquidity  

Another important factor to consider is liquidity…

This basically means how easy it is for an asset to be bought or sold.

Higher liquidity levels typically result in lower spreads. The spread is the difference between the bid (buy) and ask (sell) price. The ‘spread’ is what you pay to trade in forex and stocks, as well as commission in some cases. (If you want to learn more about this topic, go here after reading this article.)

Remember, higher liquidity levels typically result in lower spreads. That’s why liquidity generally goes hand in hand with volume.

The forex market is roughly 30 times larger than the stock market. So liquidity is generally extremely high. This is particularly the case with the high volume pairs, such as the EUR/USD. It’s not uncommon to find spreads as low as 0.1 pips, which is really tight.

The stock market also offers favourable liquidity levels for certain stocks. But it’s not quite on the same level as forex. For example, blue-chip stocks (i.e. Apple) tend to have excellent liquidity…but the same can’t be said for less popular stocks that few people know about. The bottom line here: popular stocks have tighter spreads…but not as tight as forex pairs.

Wide spreads can have a detrimental effect on potential profits, since it can be harder to buy and sell.

Volatility 

Moreover, the volatility of a market’s price refers to how likely it is to change in value.

If there’s one factor that’s likely to have the biggest effect on your profitability, it’s this.

Both markets are highly volatile…but in two very different ways.

The forex market has a lot more players. So when something happens (i.e. a major macro event), there’s a lot more people reacting to it. In other words, more traders making trades generally means higher volatility.

Pro tip: if you want to trade forex, it’s extremely important to keep one eye on the news at all times (more on this later).

The stock price can double easily, as it’s a less liquid market, and there’s not as many news events that can impact the stock market.

The price of a US dollar can’t double easily. I mean, it’s possible. But unlikely.

Forex pairs tends to trade in ranges and this is where most potential profits can be found, unless you’re a breakout trader or a momentum trader.

But most forex trades involve short-term changes of only a few points…

The stock market is home to many day traders. But the big money is made in buying and holding for long periods of time (i.e. investing).

It ultimately comes down to what kind of trader you want to be. There’s a million ways to make a million bucks in the forex and stock markets.

There’s no one way to trade.

If you are interested in short-term trading, you will like the constantly changing nature of currency pairs and the leverage that the forex market offers.

If you are more interested in investing, you are likely to prefer the stock market. Then again, you can trade your long-term view in the forex markets, with leverage, to make huge profits.

Leverage

Trading with leverage allows you to enter a trade with a fraction of the capital otherwise required.

Leverage is available with both forex and stocks. But it’s a much more prominent feature of forex trading.

The amount of leverage available on forex markets is also significantly higher. US traders are limited to a leverage of 50:1. But it goes a lot higher elsewhere…and if you’re restricted to certain leverage limits in your country, you can open a forex trading account in another country (i.e. Langkawi, Malaysia) to bypass those leverage limits of your home country.

Whether or not leverage will make you a more profitable trader is certainly open for debate. While it opens the door to much higher profits, it also increases the likelihood of massive losses – especially if you don’t know what you’re doing.

But the availability of higher leverage in forex gives you opportunities that aren’t going to be found in the stock market.

Your ‘Start With Forex’ Takeaway: Forex vs Stocks: Which is More Profitable?

If you want to trade forex or stocks, you can expect to do quite a bit of reading. Start With Forex is a free, 24-lesson forex course, which you can find here. Don’t click that link now. Save it for when you finish this article.

As you know, the difference between stocks and forex is massive.

If you opt for stocks, you will be concerned with information about specific companies. For example, you will want to learn about a company’s story and financials. If you opt for forex, you must take a big-picture outlook. Stocks react to news about companies. Currencies react to news about entire countries.

What do you find more interesting?

Macroeconomics or company-related news?

If you want to be a profitable forex trader, you need to know what’s happening in the world and connect the dots. Whereas in the stock market, it’s possible to make money by just knowing a lot about a single company.

The question of the day is: forex vs stocks: which is more profitable?

It really depends on your personality.

You can make massive profits in both markets…

Forex has a number of benefits that you won’t find in the stock market. You can trade whenever you want, the spreads are lower, and you can access higher levels of leverage. So if you like reading about world events and thinking about the world, forex is the obvious choice. And if you enjoy technical analysis (trading off charts), forex is a good choice as well.

But, if you have a preference for buying and holding, or you simply don’t care for economic policies, you might be better suited to the stock market. Remember, at the end of the day, you can make massive profits in both markets. You just need to decide which one is for you. Forex, stocks, or both?

If you choose forex, it also helps signing up a forex signal or a forex system provider. That way you can learn how to make the best trades as well.

If you want to learn how to trade forex like a professional, start by reading our FREE forex course. Remember, there’s a million ways to make a million bucks in the forex markets. So if you want a head start in forex trading, alongside our free course, check out our approved products page for forex trading signals and systems to help kick start your trading.

To your trading success,
Start With Forex

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