What’s More Profitable For Day Trading: Forex Or Stocks?
When it comes to day trading, two of the most popular assets which many experts like to trade are currencies on the forex market and stocks on the stock market. Many people find it difficult to decide which asset is a better choice for them.
We are going to help you make that decision by covering forex vs stocks trading in this article. Even though they may look similar to beginner day traders, in fact they are two completely different assets which require a specific approach and corresponding trading strategies.
Let’s get started and find out which option could be more profitable for you.
What is the difference?
The forex exchange market is recognized as the largest and most liquid financial market in the world, where traders deal exclusively in trading currency pairs.
The stock market, on the other hand, allows traders to speculate on the value of blue-chip stocks and penny stocks, which are all popular. Multi-billion companies that are well known around the world, including Tesla, Apple, Amazon, and Microsoft, offer some of the most promising shares traded.
The major differences when it comes to forex vs stock trading:
- The trading hours – The forex market is open 24 hours a day for 5 days a week because of overlapping time zones. The stock market has a set daily timetable for trading hours that vary considerably.
- The volume of assets – The forex market has more volume, over 300 currency pairs, and moves more money in a day. The stock market presents more opportunities, even though the volume cannot match the forex market.
- Volatility and liquidity – This is where the argument comes down. You see, without volatility, you cannot make money. However, with too much volatility, you cannot consistently make profits. It is easier to trade stocks for beginners because the volatility is not too high and allows room to breathe.
- Margin rates – Forex offers much lower margins (from 3.3% or equivalent to leverage of 20:1). The stock market has fewer risks since the margins start from 20% or a leverage ratio of 5:1.
- Trading strategies – Some of the strategies are different but the majority of decision making is actually pretty similar. In any way, the abundance of information is present for both financial markets, allowing anyone to learn and join.
Day trading stocks vs Forex
There are several markets you can day trade but the premier ones are stocks, forex, crypto and futures. In this article, we are going to look at the two central pillars of forex and stocks. What is day trading like when you pick either of the two?
We are going to look at the most important considerations to make when picking which markets you should day trade in.
Forex vs stocks profit potential
Stocks and forex both have the same potential to make a profit when day trading. However, it depends on who is trading, what they are trading, and how much they know about what they are dealing with.
Stocks usually require more capital than forex to day trade. However, they are less risky and as such, offer stable and more predictable outcomes. Even though forex has a low threshold for entry, it does not mean that profits are guaranteed and people lose money more quickly. Since the capital requirements for stock day trading may be high, a person can try to get funded stock trading accounts to avoid having to pony up the required capital.
The forex market is open for more time than the stock market is. Because of that, the day trading times vary. While the forex market is open 24 hours a day, 5 days a week, the stock market opens at 9:30 A.M. EST every day except stock market holidays and weekends.
This allows people to have time to prepare and enter the market when they feel ready. It all comes down to what times are best to trade and which of those work for your schedule. It is always important to make sure that you are alert when working and that fatigue does not set in, as distractions can be costly, especially when trading forex.
The instruments you can trade
In day trading forex, one will have to pick a currency pair that they understand. Most trade the EUR/USD and GBP/USD pairs because they are highly liquid and offer enough movement to execute trades.
In stocks, traders can begin by picking one that they understand and which is favourable. The thing to look for is a stock with enough intraday movement and a lot of volume. For instance, you can look for a stock that moves more than a certain dollar amount in terms of price in a day on average.
The most important thing to keep in mind is that trading courses for beginners are important to understand these markets and trade well within them.
Forex vs Stocks: Which is more profitable?
Let’s get one thing out of the way first; there is no way for anyone to tell you that one financial market is more profitable than the other. However, what we can do here is tell you what the markets are like and you can figure out which one is more suited to your goals and skills.
To find out which financial market is better for you, you have to take into account the individual trade, what you know about the markets, the experience you have, and your level of skills in analysis. These reasons are why we recommend a trading course for beginners.
However, there is one thing that we do know for sure. The two financial markets are not the same and that could be the thing that informs your decision to trade either stocks or currencies on the forex market.
One of the first things you do, as a trader is picking an instrument or asset to trade. After that, you have to consider things like:
- Personality type
- Trading goals
- Strategies to use
- Sources of information
- Tolerance to risk…and more.
After you know who you are as a trader, what you would like to trade, and how you would like to trade it, the rest of your journey should follow a natural progression.
We can base which financial market is better for you, depending on the goals you have.
If you are looking to make small profits frequently, then you will have to rely on the price movements that short-term market strategies rely on. For that, you need to trade forex, which is more volatile, with prices that swing daily, due to economic, political, and social impacts in economies across the globe.
The stock markets are not too wild in comparison, given that the companies’ value tends to remain the same and appreciates over time unless something happens that cannot be avoided or is unforeseen.
Even then, stocks have been known to be more resilient and even with high capital requirements, one can still get funded stock trading accounts and begin trading.
If, however, you are looking to buy and then hold for long-term profits, then the stock market is where you need to be. The volatility is much lower, which means that you can be sure the prices will not just plummet for no reason. If they do, it will be something you can predict and even avoid by pulling out of your trade before something happens.
The forex market does not have this kind of breathing room and requires one to know a lot before they can get started. There is also the matter of leverage, which is what attracts many people to the forex market. They assume that with the leverage being that high, they will be cleaning up and making money hand over fist.
However, they do not account for the fact that with increased leverage, comes increased risk. That is why many new traders fall by the wayside in their first few trades. Since there is an overlap, it is recommended to begin trading with stocks. If you have a low tolerance for risk or want to trade in a financial market that doesn’t rush you or put you at risk levels you cannot handle.
However, the majority of experts agree that stocks are easier to trade, yield more consistent profits, and generally offer better returns as a consequence, compared to forex.
After examining all the pertinent aspects and doing a forex vs stock trading standoff, we have to come down on one side over the other. Taking into consideration all of the mentioned points and advantages, day trading stocks may be on average better for a regular trader.
Their stable nature, constant prices, predictability, and ease of trading is what makes them attractive. In our forex vs stocks profit decision, we pick stocks day trading, because of its favourable nature.
Are you ready to start your stock trading journey? Pass our trading challenge and get a chance to win access to a $14,000 funded account. Given that the capital requirements are usually higher than those of the forex market, a stock funded account is a great way to begin your days as a trader.