I am often asked which strategies one should trade and what can actually be traded. Often, I notice that people focus too much on strategies without understanding what they should actually trade and why. I, too, skipped this step back then and chose Forex directly. Since I switched to stocks in 2018, my approach and success have improved significantly. That's why today I'm showing you 10 reasons why stocks and especially US stocks are the perfect trading instrument for traders.
Reason 1: The stock market offers daily great opportunities
If you want to trade regularly, you need a market that offers daily opportunities. How can we roughly define opportunities? We aim to trade instruments that move significantly enough. The Average Daily Range Indicator makes it easy for you to compare different instruments. We then see, for example, that a stock moves more than Bitcoin and the currency pair $EURUSD, which means more opportunity.
Reason 2: Large selection of stocks
The selection is much larger, which means that you can find exactly what is relevant for you every day. This allows you to run a proper business because there are daily opportunities, and you don't have to wait for something for days and maybe miss it, as is often the case in the Forex market.
Reason 3: High liquidity
Perhaps you say that exotic currency pairs also have high volatility and therefore great opportunities. But the problem here is the low liquidity. This leads to large spreads, which in turn means greater risk. There is excellent liquidity in stocks and due to the large selection, you have the opportunity to focus only on these good liquid stocks. My tip here is the dollar volume: multiply the price of the stock by the average daily volume. The result should be greater than $50 million, which is an indication of good liquidity. This allows you to trade large positions without affecting the market. You can easily get in and out, so the risk remains manageable even with larger positions.
Reason 4: Trading spreads
The spread can be traded - but what does that mean? In the so-called "Level 2", you can see in real time the limit orders placed by the brokers - both those of the buyers and sellers.
How does a buyer get into the stock? By someone selling "at market" (see market order) and thus filling the buyer's order. If the price now goes up, the buyer was never at a loss. This is not possible with products like CFDs. Here, you will only be filled if the selling price also falls below your limit. So, you always have a disadvantage!
Reason 5: Centralized market
Because the stock market is centralized, you cannot be faked out. There are no strange stops that have only happened at your broker. So, only the actual prices of the NYSE or NASDAQ count. If the low was maybe $23, you can't be stopped out at $22.98. This often happens with CFDs because CFD brokers have their own price quotations and certain instruments only mimic - usually to their advantage.
Reason 6: Stock news
There are daily stocks that have news. So, there are fundamental reasons for movements. If we supplement this knowledge with our technical analysis, we increase the probability of the trade. So, this is another way we can expand our niche.
Reason 7: Trading tools
All these advantages are useless if we can't find the appropriate instruments. That's why I love the US stock market. There are numerous professional tools here that allow you to take advantage of all the benefits. There are tools for news, scanners that allow you to look for technical and fundamental parameters, and much more.
Reason 8: Level 2
Because it is a centralized market, there is a central volume that every trader can see. This allows all transactions to be displayed in real time, the so-called tape or times and sales. Furthermore, we can also display Level 2, where we can see buyers and sellers. Since a lot is being tricked here and not everything you see there is real, this is a very advanced skill. But even here, my opinion: Even if you are just starting out, you want to have the tendency to be able to get more out of your niche and go even deeper into detail.
Reason 9: The costs
The costs are very manageable. With the right US brokers, order costs are no higher than with Forex or CFDs. We must not compare this with our experiences with German banks, which are not designed for active trading. This also means that we do not need a high starting capital, and you can start with a few thousand euros without having to make any compromises. The only costs that are slightly higher are the market data, which are not free compared to CFD and Forex providers. But here, too, my clear opinion: Cheap is not good. There are reasons why they provide you with this data for free. So if I can earn much more on the other side, I'm eager to pay a little for the data!
Reason 10: Stocks are physical
Physical stocks have been around much longer than all the derivatives, which are subject to other regulations. This is why there are advantages when it comes to taxes because they are not futures contracts, as is the case with CFDs and Forex, for example. Therefore, the risk of any restrictions in the future is not as high as with the younger decentralized instruments.
Let Felix personally explain to you again why stocks are the perfect financial instrument for trading