Forex Vs Stocks vs Penny Stocks : Which One Should I Choose for Investing

The market is such a broad term to define. Traders and enthusiasts often compare real estate versus stocks or stocks versus crypto or crypto versus forex because everyone wants to find the most practical and profitable way of earning real money.

Undeniably, it is challenging to earn easy money in the market because people would never know when their money devalues and appreciates.

Whatever market you’re participating in right now, there will always be an opportunity for it to become more profitable than the other and vice versa.

We’re going to explore all that in detail, but to start, let’s first talk about Forex vs Stock vs Penny Stock. Let’s begin.

Forex

Forex is a market wherein traders can sell, buy, and exchange currencies. This market is actually composed of commercial companies, banks, central banks, hedge funds, investment firms, investors, and forex brokers.

This market isn’t dominated by only one market exchange but is managed by a network of brokers and computers worldwide.

Foreign exchange brokers serve as the market makers, and they are the ones who post ask and bid prices in exchange for a particular currency pair. Whoever has the most practical and competitive bidding price will get sold the fastest.

Foreign exchange is composed of two elements: the over-the-counter market and the interbank.

The interbank is home to large bank firms’ trades. Their participating purpose is for sheet adjustments, hedging, and on behalf of client trading. The over-the-counter market is home to all individuals who want to participate in forex trading through brokers and various online platforms.

From Asia’s Monday morning to New York’s Friday afternoon, forex is open for trading 24 hours a day. Meaning to say, it doesn’t close overnight. Thus, it is different from bonds, equities, and commodities markets that all close for a specific period daily.

Stocks

Stocks, on the other hand, refer to a collection of exchanges and markets wherein regular buying and selling activities take place. Brokers actually execute these financial transactions through institutionalized exchanges or OTC (over-the-counter) marketplaces.

The market operates under the umbrella of a well-defined set of rules and regulations. The stock market is composed of thousands of participating companies globally that make their stocks available for trading. So, what are stocks?

Stocks are shares of company ownership. In other words, these shares are collectively termed stocks. A single stock share represents fractional corporation ownership in ratio to the overall amount of shares.

The stock market provides a regulated and secured environment wherein participants, or traders can engage in transactions and other legitimate financial instruments with low or zero operation risks.

Just make sure you are trading with a licensed broker; otherwise, you might be at risk for deception. Legit stock market platforms ensure fair pricing, transparency, and security in every trader’s transactions as they are equipped by a group of licensed brokers who execute trades daily.

This market allows companies to sell and issue their shares and announce them to the public through IPO requests or initial public offers. This activity enables companies to raise the essential capital from their investors to make it to the stock market finally.

IPO requests’ prices are the starting price of every company that is yet to enter the market. To facilitate these processes, a company has to have a marketplace wherein they can sell their initial shares.

It means that they should divide their ownership into a specific share number (for example, 10 million shares) and sell a portion of those numbers (for example, out of 10 million, they’d only sell 5 million) to the common public. These shares enter at a special price, for example, $5.12 per share.

 

Penny Stocks

Penny Stocks typically refer to the stock of a small company that has less than $5 per share worth of trading value. Most of these stocks are traded using over-the-counter transactions through privately-owned OTC Market Group or OTC Bulletin Board.

Unlike regular stocks, penny stocks are traded infrequently. This means that it is not as liquid as other types of stocks, and it might be a little difficult to sell the stocks because of the lack of buyers at a given time. Due to this, it is considered to be highly speculative, which means that investors may lose a large portion of their investment or all of it.

Now let’s talk about which is the better option.

Forex vs Stock vs Penny Stock – Factors to Consider When Choosing

When choosing which investment type to go for, consider the following factors:

  • Volume

Forex has a larger volume compared to stocks. It plays around $5 trillion worth of daily investments from investors while stocks only play around $200 billion daily. The volume is undeniably the most significant difference between the two markets.

Because forex has an estimate of five trillion dollars of investments every day, it attracts more investors than all other markets. It has the most trading concentration of currency pairs such as AUD/USD, GBP/USD, USD/JPY, and EUR/USD.

The dollar volume in the foreign exchange market dominates all other currencies. We all know that huge volumes can bring plenty of benefits to traders.

A high volume would imply that investors can usually have their orders more easily executed and nearer to their desired price. This is more advantageous than all other markets, such as stocks, since stocks are prone to gaps. These gaps disable traders from entering and exiting at their most desired points.

  • Liquidity

The forex market is more liquid than the stock market. The higher volume market also has higher liquidity, and in this comparison, forex is more advantageous than stocks.

Liquidity actually results in lower transaction fees and tighter spreads. The significant forex pairs usually have extremely low transaction fees and spread compared to the stock market. So, this is forex’s significant advantage against stocks.

Penny stock is the less liquid type of investment among the three. This is because the trade frequency is not as frequent, so there is no guaranteed buyer if you do decide to sell your stock.

 

  • Open Hours

Forex is available to traders twenty-four hours daily from Mondays to Fridays, while the stock market is only available for trading 8 hours a day. What does this mean? It only means that traders would have more opportunities to monitor their trades with Forex.

Forex traders have a lengthier time in receiving forecasts about the value of their investments compared to stock traders who only trade 8 hours a day and wait for another day to execute their next move.

Some traders feel frustrated not being able to monitor the chart movements every minute or hour. So, if you’re a very active trader, forex might be more suitable for your preference. However, if you’re a long-term investor, then trading with stocks wouldn’t be a problem at all.

 

  • Commissions

The forex market has no commissions, and if there is, only very minimal. Forex brokers only earn through spreads which is the difference between the buying and selling price.

Stock market brokers earn through commission, so traders can’t execute their trades without paying fees every time they place their orders.

 

  • Focus

The stock market has a broader focus compared to the forex market. When it comes to forex, traders only deal with eight currencies. On the other hand, the stock market has thousands of participating companies, and some of these companies are listed in indices.

What are these indices? These are groups of the largest companies in a country that are also available for trading. Because stocks have more participating companies, traders can have more options to choose from and more factors to look after.

On the other hand, forex only has eight participating currencies available for trading. Thus, forex traders find it easier to monitor their money’s value.

So, Which Is Better?

Forex has unique qualities that make it different from all the other markets. For many people, forex is said to be more appealing. Despite having an interconnected relationship, the stock and forex markets are broadly different. Each has pros and cons, and the final decision should depend on your personal preferences and your attitude towards risk. Speaking of risk, penny stocks are an alluring option for investors who have a higher tolerance for risk.

Again, when determining the most suitable market to play with, it boils down to the question: “which market am I most comfortable trading with?” because you will never know what time has for you.

As long as you are willing to take significant risks to earn bigger rewards, then you will be undergoing a cycle of profiting and losing for as long as you want.

Then again, that’s what makes the market profitable: the willingness of traders to hold for an extended period or trade short-term while reinvesting gains after gains.

If investors aren’t comfortable with the trading platform they’re using or the type of market they’re playing in, there is no way for them to survive the roller-coaster ride.

Comments

Risk Disclaimer: Trading in forex, CFD, indices and commodities involves the possibility of financial loss. It may not be suitable for all investors. Only trade with money you can afford to lose. As a leveraged product losses may exceed initial deposits and loss exposure. Before deciding to trade Forex or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite. The content on this website is subject to change at any time without notice, and must not be construed as personal advice.
Copyright © Traderscap 2021