This a question or comparison that often crops up when people are deciding what to trade. People usually lean towards one side or the other and their decision is probably influenced by the factors that got them interested in trading initially. Perhaps this was a conversation(s) with friends or family members. Or a documentary, book or or article that they came across about the markets, which piqued their interest. Having made their decision they are unlikely to change direction easily. But as they grow as a trader they may come to take a more holistic approach.
For the purposes of this discussion let's assume that the reader is interested in trading but has no immediate preference for either candidate. That being the cases let's look at the credentials of each of them.
The Forex market is the world's largest financial market by turnover, according to data compiled by the central banks banker the Bank for International Settlements or BIS.
More than US $5 trillion worth of Foreign Exchange or Forex is turned over each business day..This is a phenomenal amount of money ! To put this into perspective the daily turnover in Forex is approximately equivalent to 10 times the combined wealth of the world's 10 richest individuals. The weekly figure of US$25 trillion is the equivalent of 1.5 times the annual GDP of the USA. The monthly turnover figure of U$100 trillion is considerably in excess of the total market cap of all the stocks listed on Global Stock Exchanges,which is around US$70 trillion. I think you get the idea.
Furthermore the Forex market operates 24 hours a day, 5 days a week, as trading seamlessly moves across Asia, Europe and the Americas. Once inaccessible to retail customers the advent of online trading and direct market access, democratised Forex trading and the introduction of cash settled Contracts For Differences in Forex opened up the market to all investors and traders. As it steered retail trading away from the credit line driven, deliverable trading, conducted between banks and other institutions. Flexible deal sizes and smaller accounts are some of the other attractions that Forex trading offers to retail customers.
Though the need for a medium of exchange to facilitate cross border commerce is as old as human civilisation. It is the stock market that can lay claim to being the oldest of the world's organised financial markets. The Dutch East India company established in 1602 was the world's first joint stock company. The immensely successful venture opened up and capitalised on the international trade in spices alongside other exotic commodities and food stuffs. Setting up operations across what is now modern day Indonesia. The idea of raising capital for new ventures, or to expand existing ones caught on. Particular in the United Kingdom as it went through the industrial revolution and then, later on in the USA, as it consolidated into single country, as opposed to a series of separate states and territories.
There are stock exchanges right across the developed world today and many in developing economies as well. There are approximately 16 stock exchanges globally where the companies listed on them have a combined a market cap of US$1.00 trillion or greater. More than 43,000 companies are listed on stock exchanges across the globe, according to data from the World Bank. Trying to choose between 43,000 instruments, in which you could trade is a bewildering prospect and so some of kind of selection or filtering process is required.
One such process in the idea of indexation. Whereby the performance of the largest companies, or those that meet other specific criteria, are pooled together to create a benchmark. That will track the performance of the group as a whole and by extension reflect the “mood “ of the broader market. The innovation behind stock indices came from the financial press. US newspaper publisher the Dow Jones Company created the world's first notable stock index in 1884. This would evolve into the thirty share index that is so familiar to traders today. In the modern world there is an increasingly wide variety of stock indices.
Here at Blackwell Global we offer clients access to and the ability to trade in more than 10 of the most important stock indices from across the globe. What's more we offer these indices as Contracts for Differences or CFDs. Which are cash settled and non deliverable and which confer all the other benefits and opportunities associated with trading CFDs on a margin basis.
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As we have already noted people tend to trade what they know, are attracted towards or understand. So for example if in your day job you are involved in the tech or social media industries you may have an affinity with and understanding of technology stocks and the drivers of their share prices. If so, you may like to trade the US 100 stock index CFD which tracks the performance of the top 100 US technology stocks. Conversely you may have lived and worked abroad and seen first hand, the difference that fluctuating currency rates can have on the cost of living and your effective salary. In these circumstances you might well be drawn towards Forex trading.
There are other considerations to take into account when deciding what to trade.
Not least of which is when will you be able to trade. If the answer is not until I finish the “9 to 5” then trading the local stock market or stock index is probably not going to work for you. As you will miss the majority, if not all of the trading session on local stock exchanges.
Of course you could trade US stock indices from after 5 pm until the close of business in New York. Or get up at a fiendishly early time in morning, to trade Asian stock indices before work. But that is probably something you want to be doing long term on top of a full time job.
The 24 hour a day nature of the Forex market offers more flexibility here and rather than having to focus on hundreds of individual stocks and their performance, you can trade the half dozen or so FX majors. Or just two or three of the most active pairs, such as Euro Dollar, Dollar Yen or Cable, as Sterling Dollar is known. When these are combined with commodity centric currencies such as the Australian Dollar you get a fairly comprehensive global exposure.
Both sides of the coin
Stock Indices on the other hand allow for more targeted approach to trading, and to be able benefit from the opposite side of a trade. For example, the fall in the value of Sterling against the US Dollar, in the wake of Brexit referendum. Was ultimately beneficial for the value of the UK 100 stock index. Which rose sharply in the weeks that followed the vote.
This was because its constituent stocks are mostly exporters and the fall in the value of the Pound Sterling made their products cheaper to foreign buyers. If you spotted that opportunity you could have sold the GBP USD Forex pair and bought the UK 100 stock index. Of course you would still have had to have to get the timing of the trades right. But if you did, you would have benefitted from moves on both sides.
I think that last example serves to show that you should not be too dogmatic about the instruments you trade and that you should try to adopt, or be open minded about, a holistic approach to trading. Because if you don’t have that the you may be missing out on a significant percentage of trading opportunities that present themselves .
The good news is that Blackwell Trader MT4 is a “one stop shop” for trading Currencies, CFDs on Stock Indices, Oil and Precious Metals. The platform is offered free of charge and comes in desktop and mobile variants. Its packed with high quality charting tools and indicators and a single login works across all of the qualifying devices.
Why not take a closer look