Why Choose Forex and Not Stocks?

Before we move on to other, much more tactical articles, there are bound to be many people asking, “Should I choose foreign exchange (forex) instruments over other instruments?

The answer is, nothing should be in life. Likewise with forex. However, we need to know the advantages and disadvantages of each instrument.

For example, when you buy a stock instrument, what are the benefits of buying that instrument?

Buying stock is actually buying ownership in a company. The explanation is this. If you buy 1 lot of shares from a company that issues 1 million shares, it means that 0.01 percent of the ownership of the company is in your hands.

Over time, the company made a profit. If the company is profitable, you will get a dividend or a share of the company's profits. The amount is according to share ownership. As per the illustration above, you get a dividend of 0.01 percent of 100 percent of the company's profits.

Then, do you bother to keep the stock as long as you buy it?

Of course the answer is no. Moreover, in the era of scripless or scriptless form of share ownership, you won't have to bother buying a safe or a safe deposit box to store your share securities.

So, is buying gold and United States (US) dollar banknotes the same?

If you bought gold and took the gold home, what would you expect from taking the gold home?

Buying stocks and gold is certainly different. When you buy gold, you don't get any interest or “children” on the ownership of the instrument.

Without us knowing it, stocks actually provide two advantages. First, profits from changes in stock prices. Second, the profits that come from the distribution of company dividends.

Are you sure you can? Not. It depends on market fluctuations and company performance.

Meanwhile, when buying gold, you will only expect one thing, namely an increase in gold prices and the potential for it to fall as well.

Illustration of technical analysis. Doc. Octa Investama Futures Illustration of technical analysis.

So, what about buying US dollars?

Similar to stocks, by buying US dollars, you will get two advantages. You can benefit when the US dollar strengthens (appreciates). Then, when you deposit US dollars, you will get interest on deposits.

So, let's distinguish the interests of buying gold and currency. When you buy gold, the profit you get is purely from the difference between the buying and selling prices.

When bringing home gold, we only get peace of mind because the physical gold is in our hands. Beyond that, there is no other benefit.

That means, your interest in buying gold only talks about the price. Well, the futures market can also give you that convenience.

You can benefit by buying gold in the forex market and futures exchanges for the price of gold against the US dollar or what we know as XAU/USD.

As discussed in previous articles, the forex market also provides other advantages. You can buy gold without using your own capital.

Then, the profits and losses of gold transactions in the forex market can be yours 100 percent.

Not to mention, if you buy gold, for example, 25 grams, you need time to buy and store it in the deposit box. If you want to sell it, you have to take it out of storage again, take it to the gold shop, and sell it. How much money and time is wasted just buying and selling?

Meanwhile, you will not find such a lengthy process in the forex market. Don't forget, the forex market has a trading time of 24 hours and five days a week. This means that the speed and efficiency of transactions is really an advantage for you compared to looking for profits from the conventional gold price difference.

What about currency trading? Can forex and futures transactions provide two things, namely the difference in price and interest?

Actually yes. However, to be able to understand the benefits in the form of interest, it will be a longer discussion. For example, trading the euro currency to the US dollar or EUR / USD, we need to know the interest reference of each currency. Then, divide the interest between the two currencies. If there is a new difference, you will benefit.

However, I personally choose the forex market that doesn't take this into account. This means that it does not take into account daily interest costs or is called a free swap.

From the explanation above, we can conclude that transactions on the futures and forex exchanges have several advantages. First, trade for 24 hours and five days a week. Second, the speed of buying and selling. Third, cost efficiency. Fourth, the price difference is small.

A simple example, we can see the difference between the buying and selling prices of gold. When I write this article, the buying and selling price of gold in the forex market is XAU/USD: 1,787.24/1,787.69.

This means, if you buy, you must execute at a price of 1,787.69 US dollars per ounce. Then, selling gold, you need to sell it at a price of 1,787.24 US dollars per ounce.

If the difference, we find the difference in the buying and selling prices of 0.45 US dollars per ounce. If it is converted into rupiah, which is Rp. 14,500 per US dollar, the difference in price for 1 ounce is Rp. 6,525.

With 1 troy ounce equivalent to 31.1 grams, the difference between the buying and selling prices per gram of gold in the forex market at the time I wrote this article was IDR 210.

Compare with the market price of gold bullion in the conventional market. When I wrote this article, the price of gold bullion per gram was Rp. 837,000/Rp. 882,600. What's the difference? IDR 45,600 per gram!

The bigger the difference, the longer you get the profit, right?

So, if you buy currency or gold because you want to trade, it will be much more efficient to make transactions on the forex market and futures exchanges.

After all, the direction of movement in the forex and futures markets is two-way. The market goes up, you can profit and the market goes down, you can still profit.

Note: Trading CFDs with leverage may bring high profits, but it can also cause you to lose funds. Please consider the risks before investing.

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