Monday February 1, 2021 - 23:22:57 GMT
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Should you trade forex or stocks?
If you've got some extra money lying around, you may be thinking about investing it. There are many places to invest, so how do you know where to start? Let's begin by considering two of the hottest markets: stocks and foreign exchange.
Differences between forex and stocks
Of course, the most obvious difference between forex and stocks is the fact that you're trading two different asset classes. Forex involves buying and selling currencies, while the stock market deals with shares of companies that grant voting rights and partial ownership.
Another big difference between these two markets is the hours they are open for business. The forex market only closes on the weekend so that you can execute trades with US forex brokers (you can find them here) around the clock during the week.
For best results, you should work with forex brokers in the USA when the market is most active. For example, if you're trading the GBP / USD pair, you'll want to trade during the morning hours Eastern time because you'll get trades from both sides of the Atlantic.
On the other hand, each stock exchange sets its own hours of operations. In the US, stock exchanges are open from 9:30 until 4 Eastern, and trades can be made at any time during these hours. There is also premarket and after-hours activity if you want to make a trade based on news that happened outside regular business hours.
Factors that influence trades
No matter which type of asset you trade, it's essential to understand the market's drivers. For the forex market, drivers include indications of how the economies attached to both halves of the pair are doing. Commentary from their central banks can also increase or decrease the value of their currencies. US forex brokers will work with you to understand the mechanics of the market, but you should also learn as much as you can about the economies whose currencies you want to place bets on.
Drivers for stocks include company-specific information such as earnings and cash flow. News about various sectors will also impact the stock prices of companies in those sectors. Macroeconomic news can also affect stock prices in general. For example, if something happens that causes investors to want to take on more risk, stock prices will rise with no new company-specific news.
Choosing between stocks and forex
The characters of the stock market and forex market are also very different. Forex prices tend to change rapidly, while stocks can be volatile or not. Many day traders are into the forex market because of opportunities to take advantage of sudden swings in prices. However, the stock market also has its share of day traders, especially given how rapidly prices have been changing on some names recently.
Before you decide, you may want to speak with a stockbroker and forex brokers in the USA to understand the markets better. It would also be a good idea to work with a financial advisor who can help you figure out if you will be comfortable with the amount of risk associated with each type of asset. Further, an advisor can help determine if either asset is suitable for your needs and goals.
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