There are currently many financial markets, though, arguably, forex, stocks, and crypto are the most popular. While variations exist within these markets, such as futures and options, forex, stocks, and crypto are the primary ones. With this much variety, it can be hard to decide which one can give a trader or investor the best ‘bang for their buck.’
New alternatives to stocks
Stocks are a very traditional and old-school financial asset that has existed for centuries. Most investors see stocks as the tried-and-tested method for long-term wealth. However, they may be too expensive for individual investors, so there are two alternatives: forex and cryptocurrencies.
Forex is only a few decades old, though analysts don’t necessarily refer to it in a so-called investment portfolio.
Nonetheless, forex is one of the most accessible playing fields for beginners, which is one of the main reasons it’s the most traded financial market.
These are a relatively new entrant with only several years of being firmly established as a widely traded instrument. Crypto is known to be a lot more volatile than its counterparts, probably as it’s still a relatively new entity with plentiful speculators.
However, the technology and disruptive use cases of crypto are likely to grow the liquidity to levels near its predecessors.
We have only scratched the surface in terms of the immediate thoughts that come to mind when we think of each market.
The question then arises if we can decide which is the best market to trade objectively. The quick answer is there is no one right response, as there are numerous variables that mean different things to different people.
Points to consider
Ultimately, each person’s situation is unique, which determines what they believe is the better market to invest in. Let’s first examine the table below that briefly summarizes the key points before diving into them in more detail.
|Leverage/capital requirement||Higher leverage = lower capital requirement||Significantly lower leverage = higher capital requirement||Significantly lower leverage = higher capital requirement|
|Liquidity||At least $5 trillion traded daily||At least $200 billion traded daily||At least $390 billion traded daily|
|Fees||Floating or fixed spreads and swaps, and sometimes commissions instead of spreads||Commissions and swaps||Floating or fixed spreads and swaps, and sometimes commissions instead of spreads|
|Technical and fundamental knowledge||Equally challenging||Equally challenging||Equally challenging|
|Market hours||24/5 (easier to day trade)||Limited hours (harder to day trade)||24/5 (easier to day trade)|
|Market movements and introduction to new markets||– Forex trends a lot less than other markets. |
– Fiat currencies are already established; no new fiat currencies are made. No new markets mean no opportunities for true ‘buy and hold’ investing.
|– Many stocks stay in extended bull markets, which suits long-term investors.|
– IPOs, which are essentially new markets, allow for the true ‘buy and hold’ approach.
|– Being a relatively new instrument, many cryptos, especially newer altcoins, can also stay in extended bull markets.|
– ICOs, which are essentially new coins, also allow for true ‘buying and holding’ similar to stocks.
Forex wins here by a mile. Though all three of these markets utilize leverage, in forex, it’s significantly higher. While there are detriments with this feature, you can start with much less capital. Many brokers offer accounts starting from $5.
Cryptocurrencies and stocks currently average roughly 1:10 leverage, which means higher capital requirements.
In forex, typically, the lowest leverage is 1:100, though in most cases, this can go up to 1:1000 (in some extreme cases, 1:3000).
Forex also wins here by a mile. We can observe the numbers regarding the liquidity of each market. Too much liquidity often leads to volatility, which is prevalent in many markets, particularly in forex.
Lower liquidity can also lead to volatility, as in the case with crypto, especially newer coins. Relatively speaking, stocks are in the middle ground when compared to their counterparts.
Forex is slightly less expensive to trade, but no market is necessarily significantly cheaper than another – therefore, we can conclude that it’s even. In this regard, it usually depends on the specific instrument and the broker. In forex, the main cost is the spread. In some cases, there could be a commission instead. With stocks and cryptocurrencies, there are typically commissions.
We should note that holding positions may come with leverage change, which fosters considerations on capital requirements. In contrast, with forex and crypto, traders don’t need to worry about this factor. All markets will usually have positive or negative swaps depending on the instrument traded and the broker providing it.
Technical and fundamental knowledge
The knowledge required for each to be successful is equally challenging. All the technical chart patterns used in stocks apply almost identically to forex and crypto.
With fundamentals, the level of difficulty is also fairly consistent irrespective of the instrument, with a few exceptions here and there.
Forex and crypto are the clear winners here, as nearly all of their markets open 24/5. Most stock exchanges operate similarly to regular business or working hours. Day traders particularly favor the flexible and longer hours for forex and cryptos as it’s easier to ‘get in and out.’ With stocks, due to the limited time, it’s harder to do the same without holding positions overnight.
Market movements and introduction to new markets
Stocks and crypto trump forex in this aspect. Forex consists of already recognized currencies, which have been in similar price ranges over the years. Theoretically, it’s a lot harder to ‘buy and hold’ in forex as this instrument ranges a lot more than it trends. This feature is favorable for short-term traders but certainly not for long-term ones.
Stocks and crypto are unique as they introduce IPOs (initial public offerings) and ICOs (initial coin offerings), respectively. A new market allows for a long-term investment with just simply buying and holding.
Aside from this aspect, structurally, crypto, and stocks, in particular, can stay in extended, ‘runaway’ bullish trends, and this also applies to established markets. For the classical, long-term ‘buy and hold’ investors, this function is perfect for them. Forex is better suited for short to mid-term trading strategies as, technically, there are more fluctuations by design.
As we can see in the above factors, there is so much to consider in deciding the best market to trade. One approach used by many is diversifying through all three, which permits them to get the best of all worlds. Others may prefer to stick to one or two at the most. The decision to diversify, to some extent, introduces another dimension and is not compatible with everyone. Ultimately, every factor here matters in varying degrees to every person, who will determine their preferred instrument class.