Forex vs Stocks: 3 Situations When You Should Choose Currencies Over Shares

Forex and Stock Market: very often when it comes to deciding which market to invest in, the game is played here. In fact, they are the two most frequented markets in absolute terms, capable of attracting the attention of many investors and moving the equivalent of thousands of billions of dollars every day. They are also two extremely different markets, which differ in risks, liquidity, analysis methods, and even operational dynamics. In this article, we provide a further piece to what is the most complicated choice of the aspiring trader. Specifically, we present the three cases in which it is almost certainly better to prefer Forex to the stock market, the currency market to the stock market. In any case, we will start with a brief but exhaustive examination of the two markets.

Forex vs. Stock Market: Two Different but... Close Markets

Forex is the currency market, the stock market is the stock market. So far, we don't think we're surprising anyone. Obviously, the differences don't end here; in fact, this is just the tip of the iceberg. The most evident difference lies in the unit of measurement of the value of the respective assets. The value of a stock, or rather the price, is always expressed in currency, more specifically in the currency that the investor currently uses. In Italy, obviously, stocks are traded in euros. The discourse is radically different for Forex. Currencies do not have an intrinsic price, an objective value, but it is always put in relation to that of another currency. Hence the need to trade not in currencies, but in currency pairs: euro-dollar, pound-euro, franc-dollar, and so on. This has a decisive impact on both the methods of analysis and the operational dynamics. For example, when investing in the euro, it is necessary to analyze the performance relative to the single currency and the economies correlated to it, but also the performance of the currency with which it forms the pair. The two markets also differ in their tendency to volatility and reactivity to the economic environment. Without beating around the bush, we can say that stocks are much more volatile and reactive than currencies, although the latter also leave nothing to be desired in terms of quantity and depth of oscillations. All these differences do not imply a clear separation between the two markets, quite the contrary. They are rather correlated with each other. They are so from many points of view, not least the time element, the time factor. As everyone knows, Forex is a market that essentially never closes, if we exclude weekends. However, the vast majority of traders prefer to trade in specific periods of the day, that is, when the sessions of the various stock exchanges intersect. In a sense, the day of a Forex trader is marked by the rhythms imposed by the stock market.

The 3 Cases in Which It's Better to Do Forex, Rather Than Investing in Stocks

That said, we can finally present those cases in which Forex should definitely be preferred to the stock market. We would like to point out that the identification of these cases is an exercise resulting from an estimate, therefore it has a general value. It is obvious that the particular case of the individual may not fully respond to these indications, which are, precisely, general. However, we believe that this exercise is an excellent tool for orientation, especially when it comes to choosing for the first time the market in which to operate. Without further ado, here are the three cases.

You are not comfortable with fundamental analysis

Fundamental analysis takes on different connotations depending on whether you operate in Forex or in the stock market. This is mainly due to the intrinsic characteristics of the two markets, or rather to the dynamics that move stock prices and those that affect the relationships between currencies. Let's be clear, fundamental analysis is an indispensable activity for both Forex Traders and stock market traders. However, fundamental analysis is much more complicated for the latter than for the former. The reason is quite simple, as anyone who trades in stocks experiences firsthand every day. Very simply, those who practice fundamental analysis for stocks must not only monitor what happens in the economic environment, in the real economy rather than in the political scenario. They are also called upon to analyze the performance of the individual issuing company, with explicit reference to the documents that the company itself must present by law. We are referring, among other things, to quarterly reports, if not even to the balance sheet. All this determines an additional workload. Therefore, if you are not a fan of fundamental analysis or in perspective you think you will poorly tolerate a surplus of analytical activity, then you should find yourself more at ease in the currency market than in the stock market.

Volatility scares you

Again, this case is the result of a comparison between Forex and the stock market, of reasoning on the characteristics of the two markets, and on the points of divergence that characterize them. As we have already anticipated, the truth is that the stock market is much more volatile than the currency market. Examples abound, regardless of the period to be analyzed, whether it coincides with a crisis or with a regular conduct of exchanges. It is not uncommon for a stock to lose or gain value by several percentage points. This, on the other hand, is rather rare when it comes to currencies. Let's think, for example, of one of the greatest devaluation operations in recent years, namely the one that involved the euro to the detriment of the dollar following the first Quantitative Easing. Within a few months, the euro went from about 1.40 dollars to 1.15. A variation of almost 20%, but which occurred in exceptional circumstances and over a very extended period of time. Variations of this type in the stock market are practically the order of the day. Again, if you don't like volatility or it even scares you (and you would have every reason to), then you should abandon the idea of investing in stocks and focus instead on slightly more stable markets such as the currency market. It must be said, for the sake of truth, that there is an alternative approach that allows you to invest in stocks and bypass the obstacle of volatility at the same time. It doesn't always work, but, for example, focusing almost exclusively on high-capitalization companies can be helpful. Companies of this type rarely undergo significant devaluations, although recent events (see covid) could contradict this dynamic.

You don't like short-term trading

This point is a bit more controversial, as it is susceptible to the subjectivity of the individual trader. Actually, it is possible to adopt both time horizons (short and long) both in the stock market and in the currency market. However, always by virtue of the characteristics and differences of the two markets, we can say that Forex is more compatible with long-term trading than the stock market is. The fact is that stock traders are led to act in the short term, almost with a scalper approach. In fact, the continuous oscillations of stock prices represent an invitation that is too tempting to be disregarded. Inevitably, those who operate in the stock market sooner or later are tempted to follow this approach. However, if you are not inclined to short or very short-term trading, this temptation could cost you dearly. Therefore, if your approach is more measured, attentive to multiday trading and Swing Trading, what is right for you could be Forex.