Which is Easier to Trade: Futures, Forex or Stocks?
August 5, 2010 by forexmegad-01
Filed under Forex Trading
I have little doubt that the opinions of this article will frustrate a some traders , and infuriate even more. But I have clear reasons for writing on this topic and will endeavor to expound on the assorted choices I pontificate upon. Hopefully, my reasoning will make sense with a few people and possibly turn a few heads. Needless to say, there are a diverse range of investing possibilities being actively offered to potential day traders in the current economic environment. The typical trader needs to be knowledgeable as to the inherent risks, and potential profits and losses associated with the investment opportunities being sold to the public .
I consider one of the most pertinent issues, especially of late, is the nagging lack of transparency in financial transactions . Both the stock market and futures markets are highly transparent exchanges with established recordkeeping and long-standing procedures in trading . There are regulated and audited trading and clearing disclosures in these two types of exchanges that have been enacted and made into law over decades of trading, and now function in nearly seamless precision , despite the number of fiduciaries involved with the massive number of transactions. To be accurate , the procedural methodology in stock trading and futures day trading is well-established and monitored through legal precedent and disseminated in a manner that each trader has a firm understanding of the risks and procedures involved in these two investment classes.
But the question is a bit more complicated than ordinary standardized procedures, as certain investments lend themselves to specific types of trading while other classes of investments are better suited for different styles of trading . For example, the pure speculator will probably prefer to trade towards futures contracts in his trading programs because of the liberal characteristics of leverage and volatility futures contracts inherently possess. On the other hand, a risk averse investor with a longer-term investment time period might favor blue-chip stocks as his preferred investment class . While there are instances where equity investing can be quite volatile, by and large stock investing is a more stable investment than their volatile cousin, the futures contract. The primary point here is for the average investor to pair his investment goals with a type of investments that will meet his needs and expectations . For example, an investor who likes very volatile investments in hopes of making a potentially large profit in a shorter frame of time probably shouldn’t invest in blue chip stocks. While some volatile price action in blue-chip stocks is possible , they are normally fairly dependable and methodical in price movement. On the other hand , another investor may truly enjoy the volatile price movement involved in day trading oil futures, for example. Oil futures can be very volatile and it takes a steady and skilled hand to manage these investments profitably. Just the same, the potential for extraordinary net income over a short period of time is far more likely in oil futures than blue-chip stocks. I must add one caveat, though: the fact that volatility exists in a given investment class does not assure profit, it only assures movement and it is up to the individual investor to translate that movement into profit, as opposed to loss.
In recent years another investment class has become popular and it is called Forex. Opinions on the Forex market range from a wholehearted exuberance for the investment to some investors who are, to say the least, very suspect of the Forex market. I trade the Forex market from time to time and have not encountered any of the alleged maladies some investors claim take place . But I think it is important to note that the Forex market, as opposed to the stock and futures markets, has limited transparency. There is no exchange on which Forex pairs are fundamentally traded. The Forex market is a loose alliance of participating banks that clear Forex trades more or less independently. To date, the system has worked reasonably well and been free from any widespread accusations of fraud or wrongdoing. To my way of thinking though, the lack of transparency in the Forex market is something that needs to be reconciled before I can wholeheartedly embrace the Forex trading system. Without standardized contracts, exchange oversight, and a centralized location the possibility for widespread problems simply outweighs the potential benefits the Forex system offers. I think at some point this need will be recognized and the Forex system will develop a centralized exchange with standardized contracts as the public clamors for the uniformity common to all investment classes. But to date, the system is still a unregulated association of banks and financial institutions clearing the Forex trades.
To my way of thinking, I will stick with stocks and day trade futures contracts in my trading until the Forex system advances to the point of uniformity. Of course, there are uniform currency futures available on the Chicago Mercantile exchange for those who are concerned with trading currencies. On positive note, I have no doubt that the Forex markets will evolve into a more structured trading format in the near future.
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