Stocks, forex, and cryptocurrency markets are the most traded financial markets right now. This is largely attributed to their volatility, liquidity, and immense profit potential. If you’re an entrepreneur, trader, or investor, choosing the right asset to trade can be challenging.
To make the right decision, you need to understand these assets and then choose which one of them can meet your trading needs. If you need a detailed description and comparison of these assets, then keep reading this article till the end.
What is Forex Trading?
Foreign exchange trading involves the exchange of one currency for another. Currencies are usually traded in pairs, and traders buy one while selling the other simultaneously, and the price fluctuations that occur are measured in pips. To make profits, you have to buy the strong currency and sell the weak one.
What is Stocks Trading?
Stock traders trade penny stocks or blue-chip stocks. Stock trading involves buying and selling stocks of large or multinational corporations based on your speculation or bias concerning their stock prices. If you have reasons to believe that the value of a company’s stocks will increase, you buy, and if not, you sell.
What is Crypto Trading?
Cryptocurrencies are highly volatile and prone to random price fluctuations. They can experience significant trends in a short time. A cryptocurrency’s liquidity is significantly dependent on its trading volume and supply and demand.
Forex Vs. Stocks Vs. Crypto in 2022
Market Trading Hours
Forex
The forex market is open for 24 hours, five days a week. It opens on Sunday at 5 pm EST and closes on Friday at 5 pm EST. This gives traders access to the forex market all day long since there are several trading sessions and numerous currency pairs to trade. The flexibility of forex trading hours ensures that you can choose the trading session that fits your schedule. This ensures that your schedule doesn’t limit your trading since each trading session has enough liquidity and volatility to profit from.
Crypto
The crypto market never sleeps – it is open for 24 hours every day, though some brokers may not allow trading on weekends.
Stocks
The trading session for stocks largely depends on exchange trading hours and may be influenced by your stock trading broker as well. It usually begins from 9:30 A.M. EST till 4 pm EST, from Monday till Friday. This is a decent amount of time for traders to participate, but it’s still less than the number of hours the forex market trades for.
Volume Of Assets
Forex
The forex market is the largest financial market with an enormous trading volume. Banks, financial institutions, government establishments, and other big players trade large volumes of orders daily, constantly exchanging currencies and hedging huge positions. Over 50 currency pairs are being traded, and the increase in travel, commerce, industrialization, and other human activities influence the supply and demand for these currencies. Currencies of developed countries are often the most widely traded. They include; the US dollar, Australian dollar, Canadian dollar, British Pound, and Euro.
Stocks
The stock market generally has a lower trading volume than the forex market. But, some stocks are traded more than others due to the size and influence of the companies that own them. Most investors who buy stocks do so for long-term gains, which could contribute to the lower trading volume of the stock market.
Crypto
Cryptocurrencies have experienced a surge in their trading volume in the past few years. This is due to the persistent crypto buzz and growing interest of investors and traders in the crypto space. The trading volumes in the crypto market vary widely between different coins. Bitcoin, Ethereum, and other popular crypto have large trading volumes, while other coins have extremely low volumes. Due to the decentralization of cryptocurrencies, it’s difficult for government agencies to regulate them. As a consequence, their trading volumes can be faked easily.
Volatility and Liquidity
Volatility refers to the extent of price movement and displacement that occurs in a financial asset. It can be caused by trade orders or induced by factors like the release of news and economic data. Liquidity is a measure of the ease with which an asset can be traded. Liquid assets have many participants trading daily, making it easy to execute trades.
Forex
The forex market is volatile as currency prices fluctuate constantly. The forex market is highly responsive to news releases and changes in the political and economic atmosphere of different countries. The forex market is also liquid due to a large number of participants. This means that whenever you’re willing to buy or sell a currency pair, a trader would be willing to serve as a counterparty to your trade.
But, volatility and liquid also depend on the nature of the currency pair. Exotic currency pairs tend to be more volatile and less liquid, while major currency pairs tend to be highly liquid and moderately volatile.
Stocks
The stock market is less liquid and volatile compared to the forex market. Stocks are generally less traded than currencies. The reduced number of participants leads to lower liquidity. Blue-chip stocks like Apple are usually highly liquid compared to the less traded stocks.
Crypto
Cryptocurrencies are highly volatile and prone to random price fluctuations. They can experience significant trends in a short time. The liquid cryptocurrencies are the widely traded ones like Bitcoin and Ethereum. A cryptocurrency’s liquidity is significantly dependent on its trading volume and supply and demand.
Risk
Trading financial assets come with a degree of risk. But, some assets have unique characteristics that can help (but not eliminate) the risks associated with trading them.
Forex
The forex market is less risky for new traders because the high liquidity provides a favorable trading environment that is relatively easy to trade. In addition, there is easy access to forex trading tools and resources to help traders make informed decisions.
Stocks
Trading the stock market carries a significant amount of risk for new traders because doing so successfully often requires specialized knowledge and information on the factors influencing stock prices.
Crypto
Crypto trading is a highly risky endeavor for a variety of reasons. Besides the lack of sufficient regulation, cryptocurrencies can be unpredictable and respond to various unexpected events – from Tweets and company policies to government regulations. Compared to other markets, crypto trading is relatively new and still has a long way to go in terms of finding stability.
Margin Rates
Forex
The forex market offers lower margin rates and higher leverage. Traders can trade with up to 1:1000 leverage. This means that every $1 they deposit would have a purchasing power of $1000. This high leverage makes it attractive to retail traders because they can make large gains with little capital.
Stocks
Compared to forex, brokers typically offer lower leverage for trading stocks. Hence, you may need more capital to trade stocks since there is a high margin.
Crypto
Crypto exchanges and brokers usually have moderate margin requirements. They’re often lower than stocks and higher than forex. You can trade crypto with higher leverage than stocks but lower leverage than forex.
Trading Strategies
Forex
Forex is well known for its variety of trading styles and strategies. With several indicators and trading theories, traders have numerous ways of analyzing the forex market to make profits.
Stocks
Some forex trading strategies – especially technical analysis, apply to stocks. However, Stocks require a different style of fundamental analysis to understand the underlying factors affecting the stock prices.
Crypto
Crypto trading is unique in terms of the trading strategies used. Most crypto traders and investors rely more on market analysis than technical analysis. The analysis of a cryptocurrency considers the market cap and demand and the future viability of such crypto.
Frequently Asked Questions Answered
Which One is Easier? Crypto, Stocks, or Forex?
Forex is easier for new traders to trade, but only because there are a variety of resources to learn from – from trading courses and lessons to free online videos and ebooks. Stocks and crypto may require specialized knowledge and information, but all the news and data required to analyze the forex market are free and easily accessible.
Which is Riskier? Crypto, Stocks, or Forex?
All assets carry a significant amount of risk, but cryptocurrencies are considered to be the riskiest. This is due to their high volatility and unpredictability.
Which is More Profitable? Crypto, Stocks, or Forex?
Liquid and volatile financial assets have a high-profit potential. This makes forex the most profitable financial asset. This isn’t a guarantee of profit, but the forex market does provide the best trading environment for new traders to profit from.
Trade Forex with Decode Global
If you’ve decided to trade the forex market, then you can begin by choosing the right trading tools and learning a trading strategy. You can execute trades on a forex trading platform by opening a demo or live trading account.