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Currency Trading vs. Stock Market

Original post by Walter Johnson of Demand Media

There are many ways to make money. Two of the more important are trading in equity, or stocks, and trading in "forex," or foreign exchange. The latter refers to "betting" on international currencies relative to each other. Making the decision as to which one to focus on is not easy. There are benefits to both as well as great hedging benefits for using both methods.

Forex Benefits

Trading in currencies is generally easier than wading through thousands of equity options and ideas. There are only a few major world reserve currencies, and they have a tendency to be less volatile than stocks. In both cases, these measures of value often have little relation to the actual productive capacity of an economy or country. Many other variables dictate their actual market value. Even more, forex values and news are far more public than equity investments. There are fewer chances to trade on an "insider" basis with currency than with stocks.

Forex Drawbacks

Trading currencies provide much less diversity than stocks. Currencies, being so few relative to stocks, are often shifting at the behest of important elite speculators like George Soros. The very fact that there are fewer reserve currencies than stocks means that these currencies can be more easily manipulated by states, speculators or bankers. Because the forex market is open 24 hours a day, going to bed might mean a totally different world the following morning. In equity, when the market closes, nothing further can happen to your investments until the following morning.

Equity Benefits

While there are far more stocks than reserve currencies, that can serve as a benefit. Many different stocks might force you to specialize in a specific sector. The myriad of stocks are also harder for a handful of brokers to manipulate. While stock fees are generally higher, online trading has forced prices down. Finally, stock trading, on average, maximizes your investment return. There is simply more money to make in stocks than in currency exchanges.

Equity Drawbacks

Predicting the stock market is far more difficult than forex markets. Commissions do not exist in currency trading, but they can be high for stock brokers. Currencies move more slowly than stocks, which can serve as a comfort to forex investors. Major reserve currencies are normally maintained at relatively stable rates, and therefore, trading is calmer and more measured. When investing in equities, it is very hard to tell how far apart the market price is from the actual price of the stock. Splits, options and other variables can manipulate stock prices so that the market value is unrelated to the actual health of a company. Currencies, because they are the very blood of national and global economies, must be tightly pegged to the economic health of a society. This means that currencies are, by and large, far harder to manipulate than stocks.

                   

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About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."

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