I’ve always day traded Forex, steering clear of real money when it comes to day trading crypto, and for good reason. While I do invest in Bitcoin, allocating a small weekly amount for long-term holding, day trading it is a different beast altogether.
It’s crucial to understand that you should only trade with what you can afford to lose, as losses can occur rapidly, especially when day trading Bitcoin. In this article, I’ll explain why Forex has been my preferred choice over stocks and Bitcoin, highlighting the key advantages that make it a potentially more stable and profitable option for day traders.
We’ll cover aspects such as high liquidity, 24/5 market availability, reduced manipulation, leverage options, lower entry barriers, simplified market structure, predictable drivers, and the absence of short-selling restrictions. By the end, you’ll gain insights into why Forex can be a compelling choice for those looking to actively trade the markets.
High Liquidity and Tight Spreads
Forex stands out with its immense liquidity, boasting a daily trading volume exceeding $8 trillion. This ensures quick entry and exit from positions without significant price slippage. Stocks, and commodities often have lower trading volumes, leading to wider bid-ask spreads and increased transaction costs. Tight spreads in major currency pairs like EUR/USD or GBP/USD make Forex trading more cost-effective.
Consider this: a stock with low trading volume might have a spread of several cents or even dollars, which can eat into your profits quickly. In Forex, the spreads on major pairs are often less than a pip (a fraction of a cent), allowing for more precise and profitable trading.
24/5 Market with No Overnight Gaps
One of Forex’s biggest advantages is its continuous trading hours. Unlike stock markets with limited sessions, Forex operates 24 hours a day, five days a week. This allows you to capitalize on opportunities across different time zones and adjust strategies based on global economic events. Moreover, Forex trading minimizes the risk of overnight price gaps, common in stock markets, which can lead to unexpected losses upon market reopening.
Imagine holding a stock overnight and waking up to a significant price drop due to unexpected news. With Forex, the continuous trading reduces this risk, as you can react to news and events in real-time, any time.
Decentralized Market with Reduced Manipulation
Stocks and commodities are centralized markets, often controlled by major exchanges like the NYSE or LME. These markets are susceptible to institutional manipulation, insider trading, and sudden price swings based on company-specific news. Forex, on the other hand, is a decentralized market driven by global banks, financial institutions, and retail traders, making it less susceptible to manipulation.
For instance, a single large order in a stock can cause a significant price movement. In Forex, the sheer volume of transactions makes it harder for any single entity to manipulate prices, providing a more level playing field for traders.
High Leverage Availability
Forex brokers typically offer much higher leverage compared to stocks and cryptocurrencies. Some brokers provide leverage of up to 30:1 or even 500:1, allowing you to control larger positions with a smaller initial investment. While leverage increases risk, it also enhances profit potential.
I trade with a UK regulated broker who offer 30:1 leverage. With this leverage, a small price movement can result in a significant profit (or loss), allowing for potentially higher returns on your initial investment. However, it’s vital to manage risk carefully when using high leverage.
Lower Barrier to Entry
Starting capital is another important consideration for day traders. Forex allows traders to start with as little as $50 to $100, whereas stocks and commodities often require significantly more capital to trade effectively.
The lower barrier to entry makes Forex accessible to a broader range of traders. You can start with a small account, learn the ropes, and gradually increase your trading size as you gain experience and confidence.
Simple Market Structure
Forex trading involves a relatively small number of currency pairs, allowing you to focus on mastering a few pairs rather than spreading yourself thin across thousands of stocks or multiple commodity contracts.
By focusing on a few currency pairs, you can develop a deeper understanding of their behavior, correlations, and the factors that influence their price movements. This focused approach can lead to more informed and successful trading decisions.
Predictable Macro Drivers
Forex markets are primarily influenced by macroeconomic factors such as interest rates, monetary policy, and global economic data. This makes Forex trading more systematic and easier to analyze compared to stocks, which are influenced by earnings reports and management decisions. Conversely, Bitcoin is at the mercy of what ever mood Trump is in.
Keeping an eye on economic calendars and understanding the impact of macroeconomic events can provide valuable insights into potential currency movements. This makes Forex trading more predictable and less prone to surprises compared to stock trading.
No Short-Selling Restrictions
Short-selling in the stock market is often restricted, requiring traders to borrow shares and comply with regulations that can limit profitability. Forex traders, however, can go long or short on currency pairs at any time without restrictions. This flexibility provides more opportunities to capitalize on market movements, regardless of the overall trend.
The ability to go long or short without restrictions allows you to profit from both rising and falling markets. This flexibility can be particularly useful during times of economic uncertainty or market volatility.
No Exchange Fees or Commissions
Unlike stocks, which are traded on centralized exchanges with associated trading fees, most Forex brokers operate on a commission-free model. Traders only pay the bid-ask spread, making Forex trading more cost-effective. In contrast, stock and commodity trading platforms may charge per-trade commissions and exchange fees, cutting into potential profits.
The commission-free structure of Forex trading allows you to keep more of your profits. The absence of per-trade commissions and exchange fees can significantly reduce your trading costs, especially if you execute frequent trades.
Why Not Trade Crypto or Commodities?
While Bitcoin and commodities markets have their appeal, they come with added risks and complications. Bitcoin and other crypto are highly volatile, often experiencing massive price swings that can wipe out traders’ accounts within minutes. Additionally, crypto markets lack regulation, making them susceptible to manipulation. Commodities, on the other hand are a whole different ball game.
For me, investing long term in stocks and crypto works best. I then take additional capital from this and day trade forex. I make more money this way.
In summary, Forex trading offers several advantages over stocks and Bitcoin, including high liquidity, continuous trading hours, reduced manipulation, leverage options, lower entry barriers, simplified market structure, predictable drivers, no short-selling restrictions, and no exchange fees or commissions. While all forms of trading involve risk, the unique characteristics of Forex make it a potentially attractive option for active traders.
Consider your risk tolerance, capital availability, and trading goals when deciding whether Forex is right for you. With proper education, risk management, and a well-defined trading strategy, Forex can be a rewarding and profitable endeavor.
Thank you for reading! I’m Ansoku Kuro, an Accountant with over 10 years of experience in Investing and Day Trading. I wish you the best in whatever you decide to do next.
Want to connect?
Leave a Reply