Forex trading has gained a great deal of prominence in the past couple of years. In this article, we take a look at some of the reasons why traders prefer forex over stock trading.
Forex is the Largest Market for Trading Globally
As per the Bank for International Settlements, more than 5 trillion USD worth currencies are traded on a daily basis in the forex market. In comparison, the NYSE (New York Stock Exchange) recorded a daily stock trading volume of around US$38.5 billion in 2017. Similarly, Nasdaq recorded a daily volume averaging around US85 billion dollars in the initial four sessions during the same period. One of the biggest advantages of large market size is that manipulating prices for institutions and individuals gets becomes very difficult. This often results in securities experiencing sharp pricing fluctuations in short periods of time.
Thanks to the large size of the global forex market, it provides trades with sufficient liquidity. This means traders can exit and enter trade positions conveniently. Apart from this, higher liquidity also protects traders from pricing manipulations. When a trading market enjoys higher liquidity, it is capable of handling huge growths in the volume of trading without experiencing significant price changes. Thus, traders get a low transaction cost which eventually enables them to earn higher returns for their trades.
The forex market, unlike other markets, is open 24 hours and 7 days. Traders around the globe look forward to trading currencies on a daily basis simply because it provides them with greater trading options. It also offers them the flexibility of trading as per their work schedule and convenience.
Leverage: Traders get higher leverage in forex trading when compared to stock trading. Thus, by borrowing funds to place trades, traders can enjoy higher returns. In the forex market, traders enjoy greater leverage of around 400:1 or even 500:1.