Advantages of Stock Indices over Forex Market - Stock Indices Trading vs Forex Trading
What are some of the advantages of trading Stock Indices over trading currencies? Below are some of the advantages of trading Stock Indices over Stocks.
Stock Indexes have better trends than currencies
The index market moves are based on stock market price moves. Stock market price moves tend to move in one particular direction. In times of economic growth the prices of stocks increase constantly meaning the index that track the prices of these stocks will also continue moving upward & maintain an upwards trend. While in Forex currency market moves might not be well pronounced as the market moves in index.
Stock Indexes have less consolidations & market whipsaws
Unlike forex currencies that can consolidate for long periods of time & thus producing many whipsaws, stock market indices rarely consolidate for long periods of time, index will show a particular trend direction at any one given moment - either upward or downward. This means there will be less whipsaw generated when trading stock index & every trader knows that less whipsaws equals better odds of making profits.
Stock Indexes move more points per day than currencies
Stock indices will move an average of 500 to 2,000 points per day: compare this to Forex currencies that only move 50 to 100 points per day.
Another advantage of this is that 1 point in index move is equal to $0.1 & not $10 dollars like in Forex trading. This means that when trading stock index the average profit per 1 pip move is less, therefore a trader can implement better money management in index as the minimum price move per 1 pip is not that big. At the same time because the average move in index is an average of 500 to 2000 point traders will still make a good profit even if 1 pip move is equal to $0.1
Lower Margin per Lot Requirement
The margin requirement per 1 lot for stock index varies from $5 dollars per lot to about $250 dollars depending on the index being traded. In Forex the margin required per lot is $1,000 dollars per 1 lot. Therefore a trader needs lower capital to trade indices as compared to Forex Trading.
Stock Indexes are More Predictable
For stock index, their market moves are purely based on stock price moves, if stock prices move higher stock index also move higher, if stock prices move lower stock index also move lower. This makes the index more predictable than Forex currencies.
Stock Indexes are Less Complex & More Localized & Less Global
The fact that a index tracks stocks within a single stock exchange market and in additional only tracks a limited number of the top blue chip companies really reduces the complexity of a particular index. For example the Germany DAX only tracks the best 30 companies in Germany Frankfurt Stock Market - meaning a trader following this index can concentrate their focus on keeping track of only 30 companies within the Frankfurt Stock Exchange. Where as in Forex trading Currencies is more global & the fact that Forex currencies are traded in symbols therefore a trader has to keep their outlook on a more global focus & also keep track of developments in two economies even if the only trade one Forex currencies.
Also consider the fact that one currency is being traded by many traders all over the globe & the supply & demand is determined by pure speculation - & to be good in Forex you have to learn how to accurately gauge this demand supply to become profitable, unlike index where the trends are determined by their respective stock price moves - & to be profitable you only need to follow stock prices that are used to calculate a particular index - something that is easy to do; because stock prices always move up, secondly when economies are doing well, people keep investing in stocks & stock prices keep going up, thirdly, indices track blue chip companies, blue chip stocks in any stock market always go up. Therefore, stock market indices have an advantage over Forex as they require less analysis than the Forex market.
