Why Professional Traders Prefer Trading Stocks Rather Than Forex

*Updated March 2023!

Trading is a highly competitive field, and professional traders must be well-versed in market dynamics and financial instruments to succeed. While several markets are available for trading, each with unique characteristics, stocks, and forex are the most popular among traders worldwide. However, professional traders prefer trading stocks over forex for several reasons. 

This article will explore these reasons and explain why stocks are better for traders who want to build a successful trading career. We'll also help you understand the difference between forex and stocks, followed by a brief discussion on different trading strategies and the key advantages that stocks offer over currencies, such as higher liquidity, lower volatility, and more stability. Lastly, we'll share tips on how to trade stocks effectively and the best times to trade stocks. 

So, let's get started. 

Stock Trading VS Forex Trading

Forex trading and stock trading are vastly different in how they operate. Forex, or foreign exchange, is the market where currencies are traded. In contrast, the stock exchange is the marketplace for trading shares of publicly traded companies. Forex trading is open 24 hours a day, while the stock market operates during specific trading hours. Here we list some differences by comparing the forex market vs. VS stock market. 

1. Market Size

The forex market is the largest financial market in the world, with an estimated daily turnover of over $7 trillion, while stock markets are much smaller in comparison. The size of the forex market means that buyers and sellers are always available, and it's possible to enter and exit trades quickly. However, the large market size makes it more difficult for individual traders to influence exchange rates.

2. Types of Instruments Traded 

Forex markets trade currency pairs, which involve buying and selling one currency for another, while stock markets trade shares of individual companies. Forex traders bet on the relative strength or weakness of one currency compared to another, while stock traders bet on the performance of a particular company.

3. Volatility

The forex market tends to be more volatile than the stock market due to the constant fluctuation of currency exchange rates, which can be affected by global economic and political events. Forex traders may be able to make large profits quickly, but they typically face more significant risks and losses.

4. Leverage

Forex trading allows for high leverage ratios, meaning traders can control larger positions with less capital. Stock trading typically has lower leverage ratios. Leverage can amplify profits and losses, so using it responsibly and only trading with money you can afford to lose is essential.

5. Trading Strategies 

The strategies used in forex trading can differ significantly from those used in stock trading due to the different nature of the instruments traded and the market conditions. Forex traders may use technical analysis to identify patterns in currency price movements, while stock traders may use fundamental analysis to evaluate a company's financial health. Investors use various trading strategies to trade both markets, but finding the one that best suits your individual goals and preferences is essential.

Trading Stocks VS Forex: Why Professional Traders Prefer Stocks Over Forex?

While forex may offer more potential for quick profits due to high volatility and leverage, it might still not be the preferred choice of long-term investors. Traders looking for steady growth and stable returns typically go for stock trading. Below we list some potential reasons professional traders prefer trading stocks over forex. 

1. Clear Market Trends: Because stocks tend to be performance-oriented, there are often clearer trends in the stock market compared to the forex market. This makes it easier for traders to identify opportunities and make profitable trades.

2. Easier to Analyze: Market analysis is crucial whether you choose forex or stocks. Stocks are typically easier to analyze than forex because they are driven by fundamental factors such as earnings, revenue, and growth potential. However, investors also use technical analysis to identify trends and patterns in stock prices.

3. Diverse Investment Options: When selecting between trading stocks VS trading forex, stocks offer a wide range of investment options, including blue-chip stocks, small-cap stocks, growth stocks, and value stocks. That's how traders diversify their portfolios and reduce risk.

4. Lower Transaction Costs: Unlike forex, stocks typically have lower transaction costs, including commission fees, spread, and slippage. Therefore, the stock market offers reduced trading costs and increased profit-making potential.

5. Better Access to Information: Information on companies and their financial performance is often available in the stock market. Traders can use this information to make informed trading decisions based on reliable data.

6. Regulatory Framework: The stock market is subject to strict regulatory frameworks and oversight, which ensures that trading is conducted fairly and transparently. Hence, the robust regulatory framework increases investors' confidence in the market and reduces the likelihood of fraudulent activities.

Stock Market VS Forex – Strategies For Trading Stocks

There are various strategies investors use when trading stocks, depending on their risk tolerance, financial objectives, and market conditions. Here are some commonly used strategies:

1. Buy and Hold

This long-term investment strategy involves buying stocks and holding onto them for a prolonged period, usually several years. The goal is to benefit from long-term growth in the stock market. Investors who use this strategy focus on high-quality companies with solid fundamentals. This strategy is based on the belief that the stock market tends to move upward over the long term, despite short-term fluctuations.

2. Value Investing

Finding stocks trading at a discount to their true value is at the heart of this tactic. Those investing in firms based on their value tend to choose those with solid financials, a distinct market edge, and a track record of continuous earnings growth. They believe that the market sometimes mispriced stocks, and by identifying stocks that are trading at a discount, they can buy them at a lower price and benefit from their potential future growth.

3. Growth Investing

Growth investing entails purchasing shares of publicly traded firms with projections of higher growth than the market as a whole. Common targets for growth capital are healthcare, consumer products, and technology enterprises. They believe that by investing in companies with solid growth prospects, they can benefit from their potential future earnings growth.

4. Momentum Trading

Momentum traders buy stocks already moving in a positive direction and sell them as soon as their momentum slows. Investors using this strategy often use technical analysis to identify trends and make trading decisions. They believe stocks already moving in a particular direction will likely continue moving in that direction for a while. By jumping on the bandwagon, they can benefit from the momentum.

5. Swing Trading

This strategy involves holding onto stocks for a few days to weeks, taking advantage of short-term price movements. Swing traders often use technical analysis to identify entry and exit points. They believe that by holding onto stocks for a short period, they can benefit from short-term price movements and generate quick profits.

6. Day Trading

Day trading forex vs stocks implies buying and selling underlying assets within the same day, taking advantage of short-term price movements. Day traders often use technical analysis and leverage to increase their potential profits, but this strategy is also associated with high risk. Day traders believe that by making multiple trades throughout the day, they can benefit from small price movements and generate quick profits.

Forex Trading VS Stocks – Correlation

The correlation between forex trading and stocks can be seen through real-life examples of how economic and political events affect both markets.

For example, during the global financial crisis of 2008, there was a sharp decline in the stock markets worldwide as the crisis spread. This led to a flight to safety as investors sought to protect their wealth. As a result, the U.S. dollar rose against other currencies, including the euro and the British pound, as investors moved their funds to U.S. Treasury bonds and other safe-haven assets. This led to a correlation between the stock market decline and the strengthening of the U.S. dollar in the forex market.

Another example is the impact of the Brexit vote in 2016 on both the stock and forex markets. Following the referendum vote, the British pound fell sharply as investors worried about the potential impact of the U.K.'s exit from the European Union. This also affected the stock market, particularly in the U.K., as companies exposed to Europe and global trade saw their stock prices decline. Similarly, the euro also experienced a decline against the U.S. dollar, as investors worried about the impact of Brexit on the European economy.

In another instance, the rise of technology stocks in the U.S. has also impacted the forex market. The strong performance of technology companies such as Apple, Amazon, and Google hhascontributed to the strength of the U.S. dollar against other currencies, particularly the euro. This is because these companies generate a large portion of their revenue overseas, increasing demand for U.S. dollars.

Overall, these examples illustrate how economic and political events can affect both the forex and stock markets and how changes in one market can lead to changes in the other. Traders in both markets must stay up-to-date with these events to make informed trading decisions. 

Forex VS Stock Trading – Tips For Trading Stocks 

Here are some tips for trading stocks effectively:

1. Conduct research: When buying a stock, it's important to learn as much as possible about the company, its finances, its management, and the industry as a whole. You may learn a lot about a company's growth prospects by reviewing its past performance, recent press coverage, and the advice of industry experts.

2. Have a strategy: Develop a trading strategy considering your risk tolerance level, financial goals, and research. Decide on your entry and exit points, and stick to your strategy even in volatile market conditions.

3. Diversify your investment: If you want to increase your chances of making money, it's best to spread your investments around and not put all of your eggs in one basket. Spread your investment dollars around by buying equities in different markets.

4. Use stop-loss orders: Set up stop-loss orders to protect yourself from significant losses in case the stock price drops. A stop-loss order will automatically sell the stock if it drops to a certain price point.

5. Monitor your portfolio: Keep track of your stocks and portfolio regularly. Stay up-to-date with industry news and economic events that may affect the performance of your portfolio.

6. Learn from your mistakes: Accept that losses are a part of trading, and learn from your mistakes. Analyze your trades and identify where you went wrong, so you can avoid making the same mistakes in the future. You can also explore our website to find out various helpful resources. Whether you trade forex or stocks, we have got everything covered. 

Stocks VS Forex Trading – Best Time to Trade Stocks 

The best time to trade stocks depends on several factors, including the market's operating hours, the specific stocks you are trading, and your personal trading strategy.

The stock market operates on weekdays, Monday through Friday, except on national holidays. This period is known as the "regular session." Here are the regular trading hours for some of the major stock exchanges in different time zones:

• New York Stock Exchange (NYSE): 14:30 GMT to 21:00 GMT

• Nasdaq Stock Market: 14:30 GMT to 21:00 GMT

• London Stock Exchange (LSE): 08:00 GMT to 16:30 GMT

• Tokyo Stock Exchange (TSE): 23:00 GMT to 06:00 GMT

• Hong Kong Stock Exchange (HKSE): 01:30 GMT to 08:00 GMT

Note that these are the regular trading hours, and some stock exchanges may have pre-market or after-hours trading sessions that could affect the timing of trades.

Many traders prefer to trade during the first hour of the regular session, known as the "opening bell," as this is when there tends to be the most volatility in the market. Others may prefer to trade during the last hour of the regular session, known as the "closing bell," as this is when there may be price movements due to market orders being executed.

Your personal trading strategy will also impact the best time to trade stocks. For example, if you are a day trader, you may prefer to trade during the regular session to take advantage of intraday price movements. On the other hand, if you are a long-term investor, you may not be as concerned with the timing of your trades.

Ultimately, the best time to trade stocks is a personal decision that should take into account your individual goals, risk tolerance, and trading strategy. It's important to do your research and create a trading plan that aligns with your objectives.

Final Thoughts

When deciding between stock and forex, stocks are a better option than forex for investors seeking long-term stability and growth potential, as they historically demonstrate more consistent growth and provide the opportunity to own a portion of a company and benefit from dividends and capital appreciation. Investing in stocks allows for portfolio diversification and can reduce overall risk exposure. 

While forex trading can be potentially lucrative, it can result in significant losses if not managed carefully. Investors can build a well-balanced portfolio of high-quality stocks by doing their research, being patient, and following a sound investment strategy to achieve their financial goals over the long term. If you plan to find out the best stock broker, then we recommend visiting our website now.