Forex vs. Stocks: Which Option Suits your Investment Philosophy?

by Darwin on March 26, 2013

Brought to you by Saxo Capital Markets:

Regardless of how you acquire your wealth, the lure of investment is often too much to ignore. Investing your capital can generate significant returns, although it is important to select a viable method of committing your cash. In order to do this, it is first important to cultivate a suitable investment philosophy and approach to earning income.

In terms of financial market trading, there is also a growing range of products and derivatives available to you as an investor. Two of the most popular options are forex trading and investment in stocks, each of which carry specific risks and variable rewards. With this in mind. it is important to fully comprehend these options and balance them in line with your own, fundamental investment principles.

Choosing Between Forex Trading and Stock Market Investment

So what practical steps can you take determine which method of investment suits both your individual philosophy and the wider economic conditions? Consider the following: –

Your Approach to Risk and Reward

 When you begin to invest or day trade, you will also start to develop a sense of intuition and determinism. This will play a role in determining your fundamental approach to risk, and whether you are a cautious trader or one who likes to invest heavily in the pursuit of potential rewards. This understanding can then be applied to appraise each investment option, assessing their fundamental risk factors and potential to deliver returns. So while stocks may have come under scrutiny in recent times, they have been established for far longer and offer access to more tangible wealth. In contrast, the forex market represents a relatively new investment vehicle, but one which offers margin based returns that can maximise your initial outlay.

Your Level of Market Understanding and Appreciation of Investment Options

 One of the main differences between forex and stock trading is the number of individual product options, as the former boasts just 6 major currency pairs to choose from. In contrast, there are numerous stock options to select from, which means that creating a profitable portfolio can be a challenging and time consuming task. This can be a determining factor in your choice of market, as the foreign exchange provides an opportunity for focused traders who intend to operate on a part time basis. If you are committing to the financial markets as a full time activity, however, then you will have more time to invest in executing transactions and understanding underlying market movements.

The Role of Leverage and Liquidity

 One of the most appealing aspects of forex trading is that it exposes investors to high levels of leverage and liquidity, each of which increase the potential return on any given investment. Leverage is particularly alluring to traders, as it involves the use of various financial instruments to boost the profitability of your individual orders. In terms of stock market investment, leverage and liquidity are less pronounced and theoretically less capable of offering substantial returns. Before you make your selection, however, it is important to remember that margin based investments can also incur disproportionate losses, and this represents a considerable risk if you are ill-prepared or uninformed when you enter you chosen market.


{ 2 comments… read them below or add one }

Brick By Brick Investing | Marvin March 27, 2013 at 9:34 pm

Before I was married with kids I use to trade the euro, definitely an exciting and rewarding venture. Although the unknowns, late nights, and constant research became overbearing.


Darwin March 30, 2013 at 1:37 pm

Sometimes I feel like I totally know where a currency’s going, then I’m shocked by how wrong I was. I’m curious how I’d do if I ever had any money behind it. I don’t know how the Euro hasn’t completely imploded by now. Germany’s carrying the entire currency practically.


Leave a Comment

Previous post:

Next post: