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Knowledge Crunch

Stocks vs Forex: A Quick Comparison

Friday, May 21, 2021 1:22 PM GMT

The two most well-known and most traded markets in the world.
Two different worlds of trading colliding in the battle of which is the most “shinny” one.
And it is a common question in the investor cycles.
“Which is the best market to trade?”

Frankly, this question cannot be answered as there are dozens of different investor profiles with different preferences and needs.
What we can do is dive deeper into the inevitable comparison of Stocks and Forex.

Products included
Stocks: Whichever company is appropriately regulated can offer its stock to the relevant sector. This includes from the small-cap Biotech penny stock to the large-cap multi-billion dollar in capitalization Banking stock. The value relationship is always between the country’s currency and the present evaluation of the smallest friction of a company’s capitalization. (i.e JnJ=170$)

Forex: All the currency pair crossings available in the modern banking system. Divided into 3 categories with major, minor and exotic ones. Pretty self-explanatory, the analogy between two countries’ (or Unions’) currencies. I.e (EUR/USD=1.21200)

Volatility and Trend
Maybe the most desired attribute of an investment.
It's “moving potential”.
“How far can it go?”.
This is divided into two subcategories.

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Volatility and Trend tendencies.
As volatility, we identify the average price’s fluctuations on a specific time frame.
Additionally, by the definition “trend tendency” we are describing at which extent a product is trending, meaning moving in the same direction without reversing to its mean.

In order to achieve a realistic and vivid comparison, we chose two products to represent each sector.
Apple (AAPL) for stocks and EUR/USD for Forex.

Apple has been one of the best performing tech giants in the last 2 decades. With a highest yearly ROI of more than 200% and an average of above 50%, Apple has been really generous with its investors and thus won many “loyal fans” along its journey.

On the other hand, Eur/Usd’s highest year in volatility is a little over 20%. While the average year’s fluctuation is around 10%.
We are talking about the 1/6th of potential in comparison with Apple stock.
This is a big difference.
Many people will state the existence of higher leverage to forex products rather than stocks, however, this is not always the case and even if it is sometimes, it does not negate the fact that even with higher leverage one should implement a “buy and hold” strategy for a currency pair which is against conventional investment wisdom.

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Having inspected the magnitude of volatility, we are now moving on to the trending of the products.


Here we can see for how many consecutive years the stock had the same direction, either upwards or downwards. It is obvious that Apple is a product that trends a lot, thus providing the investor an environment with bigger momentum thus higher confidence in his position.


On the contrary, in the EUR/USD we can identify a sideways market. As the years go by, Eur/Usd ends up nowhere and tends to reverse to average prices.

This can confuse the investor many times and cause uncertainty about the outcome of a position.

Liquidity and “Hotness”
This is something that might confuse a lot of readers.
Liquidity does not always equal how widespread a specific product is.
A product can be in every “hot” news available at the time but the investor would not be able to participate in the buying or selling action.
Since liquidity is by definition the ease with which an asset, or security, can be converted into ready cash without affecting its market price, we must separate the two characteristics.

The Stock Market is one of the most liquid markets in the world. Billions of dollars are being exchanged for a specific stock each day. Stocks are now available with “one-click” trading, without having to pick up the phone and place an order verbally to your stockbroker.
As much as it concerns their “Hotness”, one can simply not deny that every day we are expecting a news story for a stock that broke its new highs, or one that collapsed due to failed earnings, or a scandal with a board member. Whatever is the excuse behind it, numerous stocks offer thrilling moves both on the upside and on the downside.

With over 5 trillion dollars per day, the currency market is by far the most liquid trading sector in the world. And rightfully so, as the fundamental value of all products is derived by the relevant currency that it’s tied to.
Now for its notoriety, forex has proven many times that it can not only create news buzz around it but also cause massive events that will never be forgotten(i.e  EUR/CHF flash crash)

  • ZuluTrade Availability

Though forex is a pretty standard market and most of the brokers provide almost the same crosses, stocks are truly countless and thus ZuluTrade always pushes for broadening its list with stock products so as to cover all investors’ tastes and preferences.
More specifically.

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For stocks, Zulutrade currently offers 62 US Stock CFDs: AAL,AAPL,AMD,AMZN,AON,ATVI,AXP,BA,BAC,BLK,BMY,C,CAT,CL,CRM,CSCO,
CVX,DAL,DIS,EA,EBAY,FB,GILD,GM,GOOGL,GS,HAL,HD,IBM,INTC,JNJ,JPM,
KHC,KO,LMT,MA,MCD,MMM,MRK,MS,MSFT,NFLX,NKE,NVDA,ORCL,PEP,PFE,
PG,PM,PYPL,QCOM,SBUX,T,TMUS,TSLA,TXN,V,VZ,WFC,WMT,XOM,XRX.

On the Forex side, ZuluTrade offers a wide range of crosses, some of which are:   
EUR/JPY,EUR/USD,GBP/USD,USD/JPY,USD/CHF,GBP/JPY,EUR/CHF,USD/CAD,
EUR/GBP,CHF/JPY,GBP/CHF,EUR/CAD,CAD/JPY,GBP/CAD,CAD/CHF,AUD/USD,
NZD/USD,EUR/AUD,AUD/CAD,AUD/JPY,NZD/JPY,GBP/AUD,AUD/NZD,EUR/NZD,
GBP/NZD,AUD/CHF,USD/SEK,EUR/SEK,EUR/NOK,USD/NOK.

The consensus.
From our analysis, it is becoming obvious that even though forex is playing a big part in the daily global trading “pit”, stocks remain the products of the past and the future for a host of reasons.
They offer great trading conditions, incredible ROI provided the right timing and they always seem to “shine” on the financial news with headlines that rewrite history.
There was never a better time to start investing in stocks via copy trading.
Zulutrade offers one of the best environments to do so.
Check it out now!

 

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance, which does not constitute a promise or a certainty for a future one.

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Trading spot currencies involves substantial risk and there is always the potential for loss. Your trading results may vary. Because the risk factor is high in the foreign exchange market trading, only genuine "risk" funds should be used in such trading. If you do not have the extra capital that you can afford to lose, you should not trade in the foreign exchange market. Forex Brokers and ZuluTrade are compensated for their services through the spread between the bid/ask prices or there may be a cost to initiate a trade through the bid/ask spread. Signing up is totally free, and there is NO contract and NO monthly fees, ever.

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