Today's investors and active traders have access to a growing number of trading instruments, from tried-and-true blue chips and industrials, to the fast-paced futures and forex markets.
Deciding which of these markets to trade can be complicated, and many factors need to be considered in order to make the best choice. The most important element may be the trader 's or investor's risk tolerance and trading style. For example, buy-and-hold investors are often more suited to participating in the stock market , while short-term traders, including swing, day and scalp traders , may prefer markets where price volatility is more pronounced.
In this article, we'll compare investing in the forex market to buying into blue chip stocks, indexes and industrials. Learn about the forex market and get to know some beginner trading strategies ; check out Forex Trading: The Ultimate Forex Guide.
Many traders are attracted to the forex market because of its high liquidity , around-the-clock trading and the amount of leverage that is afforded to participants.
Blue chips, on the other hand, are stocks from well-established and financially sound companies. These stocks are generally able to operate profitably during challenging economic conditions , and have a history of paying dividends.
Blue chips are generally considered to be less volatile than many other investments, and are often used to provide steady growth potential to investors' portfolios. Want to start trading stocks?
E*TRADE Financial | Investing, Trading & Retirement
Check out which online broker offers the best tools here. Volatility is a measure of short-term price fluctuations. While some traders, particularly short-term and day traders , rely on volatility in order to profit from quick price swings in the market, other traders are more comfortable with less volatile and less risky investments.
As such, many short-term traders are attracted to the forex markets, while buy-and-hold investors may prefer the stability offered by blue chips. Leverage Leverage is another consideration. In the United States, investors generally have access to 2: The forex market offers a substantially higher leverage of up to Is all this leverage a good thing?
For more insight, see Forex Leverage: Another consideration in choosing a trading instrument is the time period that each is traded. Trading sessions for stocks are limited to exchange hours, generally 9: The forex market, on the other hand, remains active round-the-clock from 5pm EST Sunday, through 5pm EST Friday, opening in Sydney, then traveling around the world to Tokyo, London and New York.
The flexibility to trade during U. Asian and European markets, with good liquidity virtually any time of day, is an added bonus to traders whose schedules would otherwise limit their trading activity. Just because the forex market trades 24 hours a day doesn't mean you have to. See How To Set A Forex Trading Schedule. Stock market indexes are a combination of similar stocks, which can be used as a benchmark for a particular portfolio or the broad market.
The indexes provide traders and investors with an important method of gauging the movement of the overall market. A range of products provide traders and investors broad market exposure through stock market indexes. Stock index futures and e-mini index futures are other popular instruments based on the underlying indexes. The e-minis boast strong liquidity and have become favorites among short-term traders because of favorable average daily price ranges.
In addition, the contract size is much more affordable than the full-sized stock index futures contracts. To learn more, check out Forex Minis Shrink Risk Exposure. Volatility The volatility and liquidity of the e-mini contracts is enjoyed by the many short-term traders who participate in stock market indexes. The average daily range in price movement of the e-mini contracts affords great opportunity for profiting from short-term market moves.
While the average daily traded value pales in comparison to that of the forex markets, the e-minis provide many of the same perks that are available to forex traders, including reliable liquidity, daily average price movement quotes that are conducive to short-term profits, and trading outside of regular U.
Futures traders can use large amounts of leverage similar to that available to forex traders. With futures, the leverage is referred to as margin , a mandatory deposit that can be used by a broker to cover account losses.
Brokers may choose to require higher margin amounts. Like forex, then, futures traders have the ability to trade in large position sizes with a small investment, creating the opportunity to enjoy huge gains - or suffer devastating losses.
E*TRADE Review: Get Up To $ Cash Back! - Frugal Rules
While trading does exist nearly around the clock for the electronically traded e-minis trading ceases for about an hour a day to enable institutional investors to value their positions , the volume may be lower than the forex market, and liquidity during off-market hours could be a concern depending on the particular contract and time of day. While outside the scope of this article, it should be noted that various trading instruments are treated differently at tax time.
Short-term gains on futures contracts, for example, may be eligible for lower tax rates than short-term gains on stocks. In addition, active traders may be eligible to choose the mark-to-market MTM status for IRS purposes, which allows deductions for trading-related expenses, such as platform fees or education. In order to claim MTM status, the IRS expects trading to be the individual's primary business; IRS Publication and Revenue Procedure cover the basic guidelines on how to properly qualify as a trader for tax purposes.
It is strongly recommended that traders and investors seek the advice and expertise of a qualified accountant or other tax specialist to most favorably manage investment activities and related tax liabilities.
Trading forex can make for a confusing time organizing your taxes.
Should You Trade Forex Or Stocks?
These simple steps will keep everything straight. Check out Forex Taxation Basics. The internet and electronic trading have opened the doors to active traders and investors around the world to participate in a growing variety of markets. The decision to trade stocks, forex or futures contracts is often based on risk tolerance, account size and convenience.
If an active trader is not available during regular market hours to enter, exit or properly manage trades, stocks are not the best option. However, if an investor's market strategy is to buy and hold for the long term, generating steady growth and earning dividends, stocks are a practical choice.
Regardless of which instrument s a trader or investor selects, the decision should be based on which is the best fit. Dictionary Term Of The Day.
A measure of what it costs an investment company to operate a mutual fund. Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin?
This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Should You Trade Forex Or Stocks? By Jean Folger Share. The Ultimate Forex Guide Forex Vs.
Volatility Volatility is a measure of short-term price fluctuations. Trading Hours Another consideration in choosing a trading instrument is the time period that each is traded. Indexes Stock market indexes are a combination of similar stocks, which can be used as a benchmark for a particular portfolio or the broad market.
Leverage Futures traders can use large amounts of leverage similar to that available to forex traders. Trading hours While trading does exist nearly around the clock for the electronically traded e-minis trading ceases for about an hour a day to enable institutional investors to value their positions , the volume may be lower than the forex market, and liquidity during off-market hours could be a concern depending on the particular contract and time of day. Tax Treatment While outside the scope of this article, it should be noted that various trading instruments are treated differently at tax time.
The Bottom Line The internet and electronic trading have opened the doors to active traders and investors around the world to participate in a growing variety of markets. When approached as a business, forex trading can be profitable and rewarding. Find out what you need to do to avoid big losses as a beginner. Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
This market can be treacherous for unprepared investors. Find out how to avoid the mistakes that keep FX traders from succeeding. Learn about the forex market and some beginner trading strategies to get started. Forex trading may be profitable for hedge funds or unusually skilled currency traders, but for average retail traders, forex trading can lead to huge losses.
The forex market is where currencies from around the world are traded. In the past, currency trading was limited to certain The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank Learn the most common technical indicators that forex traders and currency market analysts utilize to predict likely market Trading in the forex Investors use leverage to significantly increase the returns that can be provided on an investment.
They lever their investments An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation.
A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over No thanks, I prefer not making money. Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.