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.
Indices have better trends than currencies
The Stock Indices market moves are based on Stock Indices market price moves. Stock Index market price moves tend to move in one particular direction. In times of economic growth the prices of stocks increase constantly meaning the Stock Indices that track the prices of these stocks will also continue moving upwards and maintain an upward trend. While in Forex currency market moves might not be well pronounced as the market moves in Stock Indices.
Indices have less consolidations & market whipsaws
Unlike forex currencies that can consolidate for long periods of time and thus producing many whipsaws, Stock Indices market indices rarely consolidate for long periods of time, Stock Indices will show a particular trend direction at any one given moment - either upwards or downwards. This means there will be less whipsaw generated when trading Stock Index & every trader knows that less whipsaws equals better odds of making profits.
Indices 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 Stock Indices 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 Stock Indices as the minimum price move per 1 pip is not that big. At the same time because the average move in Stock Indices 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 Indices varies from $5 dollars per lot to about $250 dollars depending on the Stock Indices 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.
Indices are More Predictable
For Indices, their market moves are purely based on Stock Indices price moves, if Stock Index prices move higher Indices also move higher, if Stock Index prices move lower Indices also move lower. This makes the Stock Indices more predictable than Forex currencies.
Indices are Less Complex & More Localized and Less Global
The fact that a Stock Indices tracks stocks within a single Stock Indices exchange market & in additional only tracks a limited number of 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 Stocks Market - meaning a trader following this stock index can concentrate their focus on keeping track of only 30 companies within the Frankfurt Bourse. Where as in Forex trading Currencies is more global and 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 and 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 Stock Indices where the trends are determined by their respective Stock Indices price moves - & to be profitable you only need to follow Stock Index prices that are used to calculate a particular index - something that is easy to do; because Stock Indices prices always move up, secondly when economies are doing well, people keep investing in stocks & Stock Indices prices keep going up, thirdly, indices track blue chip companies, blue chip stocks in any Stock Index market always go up. Therefore, Stock Indices market indices have an advantage over Forex as they require less analysis than the Forex market.
