I was recently asked whether given the levels of manipulation in the stock market, would it be better to trade the forex market as currency pairs seemed more predictable because they tended to trend with more consistency.
The answer, of course, is neither straightforward nor clearcut as both markets have their advantages and disadvantages. On the surface it does indeed appear that the forex market should be easier given its liquidity, ease of access and relatively small number of tradeable instrument compared with the thousands of shares and derivatives in the stock market.
As those of you who have visited my various websites will know I usually advocate new traders start with the stock market – in this particular case this person has already traded stocks and options for a number of years. The principal reason I endorse this approach is that shares are generally traded in a cash account which avoids the huge risks associated with leverage and margin. Such dangers have been only too apparent this week with two major hedge funds being forced to liquidate assets because of margin calls.
Another form of trading I also advocate for beginners in all markets is fixed odds trading as again the risks are relatively limited.
While the stock market is undoubtedly manipulated every day by the market makers I would suggest this is not a reason in itself to decide whether or not to trade it. Indeed if you can follow the market makers using volume spread analysis there is actually a stronger case to be made for trading stocks rather than forex.
Manipulation in the forex market does occur each time a particular central bank or government interferes which, of course, is rarely seen until after the event. Fingers are often pointed at China and Japan but if the euro keeps rising at its alarming rate we may see such an event in the next few weeks.
Other advantages to trading forex include fewer variables to worry about, less in depth research required and simplicity of trading, both long and short. Whilst it is true that currency pairs can trend consistently, in order to profit from any long term trend you will need to understand world and country economics in significant depth in order to be successful. Some of my current trades have now been open for over two years. For this type of trading you will not succeed only on chart reading.
