Out of curiosity, I Googled this question because I wanted to see why people prefer trading Forex or stocks. The top search results for this question were completely ridiculous. So I decided to write a real answer to help you make an educated decision about which market is better for you.
The market that's easier for you to trade will depend on:
- Personality
- Lifestyle
- Knowledge
- Interests
In reality, one market isn't universally easier to trade than the other. They both require study and practice to master. When someone tells you that a market is easier to trade, they are usually speaking about their personal preference…or they have something to sell you.
That said, one market may be easier for YOU.
So let's dive in and take an objective look at each market, so you can figure out which one will be the best fit. Even though this is a Forex-focused website, the bottom line is that I want to see all traders succeed…regardless of which market they trade.
Pros and Cons of Forex Trading
Pros
Limited Number of Currency Pairs
Just focusing on a few markets every week is appealing to some traders. For some people, this is the biggest reason to trade Forex.
You don't have to setup a screener or comb through hundreds of stocks every week.
Market is Open 24/5
There can be plenty of opportunities to trade, regardless of where you live. Of course, the most price movement comes during the London and New York sessions.
But there can be opportunities to trading in the Asian session too.
This gives you a wide range of times to find trading opportunities.
Low Transaction Costs
Most Forex brokers make money on the small spread and don't charge a commission. This amount is tiny, compared to the commissions you pay at an online stock broker.
So if you will be starting with a small trading account, Forex can be the better choice.
No Pattern Day Trader (PDT) Rule
In the stock market, the PDT Rule limits small account traders from making more than 4 intraday trades, within a 5-day period. In order to trade more than 4 intraday trades during that timeframe, you need to have at least $25,000 in your account.
There's no PDT Rule in the Forex market. You can take as many day trades as you want.
Higher Leverage
You can get as much as 100:1 leverage at a reputable Forex broker. This allows you to put less money in your trading account and keep most of it at a bank, where it's much safer.
Even US brokers that only offer 25:1 leverage still give you more leverage than stock brokers.
When you have the ability to leverage your money, you can grow it faster.
Small Lot Sizes
If you trade nano lots, you can take the right amount of risk, even with a tiny account. Forex brokers also provide micro, mini and full-sized lot sizes.
One of the reasons that the success rate with small trading accounts is so low in most markets, is because the minimum lot size is huge, relative to these small accounts.
For small account traders, his makes Forex a more viable option than most futures markets and can be a better option than putting your money in the stock market.
Low Account Minimums
You can open a stock trading account for as little as $100 at some brokers. Obviously, you won't make a full-time income with such a small account, but it can help you get started and learn the basics.
Cons
Market is Open 24/5
Although this is a potential benefit, it can also be a downside. For some traders, this can lead to overtrading. They think that they have to trade, just because the market is open.
Limited Number of Pairs
If you like the thrill of searching through thousands of stocks, the you might find Forex boring. You will be looking at the same number of pairs on a daily basis.
Higher Leverage
New traders can have a tendency to use too much leverage and blow out their accounts. If you don't understand how to control risk, then higher leverage is dangerous.
Currencies Can be Harder to Understand
There are so many factors that affect currency prices, that it can seem daunting. For traders who like to make fundamental (based on economic data) trading decisions, the Forex market can be a little overwhelming.
Pros and Cons of Stock Trading
Pros
Stocks Can Be Easier to Understand
For some traders, it's easier to understand what a company does. This makes the research process more logical.
You look at financial statements, research the products and see how the sector is doing.
Thousands of Stocks to Choose From
If you like the thrill of digging through a ton of stocks to find a few hidden gems, then stock trading may be easier for you.
For some traders it can be like a treasure hunt.
Since there are so many stocks out there, there's a very good chance that something will be tradable.
Low Account Minimums
You can open a stock trading account for as little as $500, at some brokers. This allows you to get your feet wet and understand the mechanics of placing a trade.
Cons
High Transaction Costs for Small Accounts
If you have a small account and are only trading a few shares, then the commission on each trade will be large, relative to your account size.
For example, let's say that you have a $1,000 account and buy 10 shares of a $25 stock, and your commission is $7 per side ($14 total). The commission ends up being 5.6% of your total position size.
Your stock will have to go up to $26.40 before you start making a profit. This puts you in the hole from the beginning.
Market is Only Open During Certain Hours
If you are in a timezone where the stock market is open at an odd local time, it can make it much harder to trade. Trading when you are tired can lead to mistakes and poor decisions.
Pattern Day Trading (PDT) Rule
As mentioned above, if you want to be a serious day trader in the stock market, you need at least $25,000 in your trading account.
This can be a lot of money for some traders, especially when you are first starting out.
Since most new traders blow out their first account anyway, this is also a lot of money to put at risk.
Things to Consider About Your Personality and Lifestyle
Now let's get into some of the other factors that you should take into account when determining which market may be easier for you to trade.
A big one to consider is your timezone.
For example, in Hawaii the New York Stock Exchange opens at 4:30 am. I'm a late riser, so when I lived there, that didn't work for me.
Of course, I could have just position traded stocks. But I knew that I was missing out on a lot of opportunties when the market opened, so I decided to trade Forex instead.
In Hawaii, the London session opens at about 9 pm Hawaii Time, so that was perfect for me. That's one of the reasons that I chose Forex trading.
Also consider which market will work better with your personality.
Do you enjoy the stock research process? For some traders, it feels like a treasure hunt. If you see it as a game, you will be more likely to succeed.
For others, researching stocks is a chore. In that case, Forex might be a better option because you have a limited number of currency pairs.
Your trading personality will play a huge role in your success.
How much time do you have to trade?
Think about how much time you have to trade. Do you have to pick the kids up from school?
Be realistic about your available time.
Things to Consider About Your Knowledge
Next, consider your experience and knowledge.
Do you know a lot about a certain industry? Maybe you have a lot of insights into cyber security or corn growers.
I'm obviously not suggesting that you do insider trading because that's illegal. But if you know an industry really well, then you will be one of the first people outside these companies to know about news events and new products.
So use that to your advantage.
It can be a lot easier to trade stocks when you have in-depth knowledge of an industry.
The same thing goes for Forex. If you used to work at a bank or you used to hedge currency fluctuations for a company, Forex might be an easier market for you to trade.
Things to Consider About Your Personal Interests
Finally, which market are you more interested in?
If you like trading a certain market, it will be easier for you to do the work necessary to succeed.
Do you like finding out about individual companies, researching their products and digging into their financials?
…or do you prefer working with a core group of currencies, so you know them really well?
Don't underestimate the power of interest and enthusiasm.
It can take you a long way.
Can You Make More Money in Stocks or Forex?
That's the real question, right?
In reality, there's potential to reach your trading goals in either market.
There are no “easy” markets in trading.
They are all challenging and require the same amount of practice, skill and discipline.
Both markets require you to manage risk, develop your skills and have a proven trading strategy.
What can make the process easier is if you actually enjoy trading that market and it aligns with your personality.
…or maybe you don't have to choose.
Trade both!
If you have any questions about Forex vs Stocks, leave a comment below…
