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Alternatives To Forex Trading

Written By

James Barra

Written By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

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Edited By

Jemma Grist

Edited By

Jemma Grist

Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.

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Fact Checked By

William Berg

Fact Checked By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

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Updated

Jun 24, 2024

Forex trading is one of the most popular financial markets – it is open 24 hours a day and accessible to retail traders with low capital requirements. However, there are alternatives to forex trading which offer compelling benefits, including profit potential. Here, we list the best forex alternatives alongside their advantages and disadvantages.

But firstly, why might traders seek alternatives to trading forex?

FX traders need to predict whether the value of one currency will increase or decrease relative to another, and this can be a difficult skill to get right. This is made harder when retail traders are pitted against large institutions with significant capital, advanced technology, and greater liquidity. Retail investors often struggle to secure the best prices and fastest execution times compared to institutional players.

Some traders also find it challenging to speculate on forex because of the nature of currency pairs and the complex web of factors influencing prices. A currency will reflect a country’s general economic performance, taking into account inflation, unemployment rates, GDP growth or decline and benchmark interest rates. To top it off, you often need to analyze both sides of a currency pair and weigh one against the other to make accurate predictions.

As a result, many retail traders look for better alternatives to forex trading. Among the best options are:

Stocks & Shares

Stocks can be good alternatives to forex trading. As well as speculating on short-term price movements, traders can put their money in companies that they believe have the potential for long-term growth while also earning dividend payments.

The most famous publicly-traded companies are known as ‘blue-chip’ stocks. These are usually large firms with solid reputations and operational reliability. Buy-and-hold investors may prefer the stability offered by blue chip organizations as an alternative to trading volatile currency pairs, though many traders look for smaller companies since they can offer more growth potential.

Stock trading works in a similar way to forex, with the value of shares usually denoted in the native currency of the exchange it is traded on. However, in many jurisdictions, regulators offer lower leverage on this asset class. For example, European-licensed brokers can offer a maximum of 1:5 leverage to retail investors looking to trade equities.

Stock markets typically trade during standard working hours in their respective time zones, Monday to Friday. This is a key difference to forex trading, which is generally available 24/5. With that said, some stock exchanges permit pre-market and after-hours trading.

ETFs

Another alternative to forex trading for more risk-averse investors is exchange-traded funds. ETFs are baskets of securities that can be bought or sold via an online broker. ETFs are a popular trading and investment vehicle, with almost 3000 ETF products listed on the US stock exchange alone. ETFs can be comprised of various asset classes including commodities and currencies.

ETFs, particularly those baskets made up of large global corporations, tend to be subject to lower volatility compared to individual stocks or currencies. Since there is a balance between products in the basket, extreme price movements in one of the ETF’s assets are usually balanced out by the others. For instance, if a company faces financial hardship one year, another may experience bumper revenues which will keep the overall price of the ETF stable.

Some of the most popular ETFs track the performance of entire stock exchanges or sectors by including a diverse range of assets from relevant companies. These are popular vehicles for retail investors since the natural tendency toward growth means they can generate more than interest from banking your savings. However, since ETFs can be used as the basis for CFD and other derivative trades, they can also be a good option for active traders.

Traders with an interest in forex may want to consider currency ETFs, which track the performance of a single currency against a basket of currencies. Examples include the Invesco CurrencyShares® Japanese Yen Trust (FXY) and the Invesco CurrencyShares® British Pound Sterling Trust (FXB).

Commodities

Also on our list of the best alternatives to forex trading is commodities. These are natural resources or agricultural products that are typically bought and sold on exchanges, such as the London Metal Exchange (LME) or the Chicago Mercantile Exchange (CME).

Trading in commodities can be a good way to diversify a portfolio, as prices often move independently of other asset classes. This means in times of economic turbulence, some commodities such as gold and silver can increase in value.

Commodities markets are hugely diverse and include everything from livestock to platinum, but all commodities’ prices are governed by the laws of supply and demand. Some traders find it easier to understand the price fluctuations of commodities since these are often the result of tangible influences such as weather or seasonal cycles. At the same time, traders who have an insight into the production of certain commodities, such as the mining of copper, may have a natural advantage in trading it.

Similar to stocks, commodities traders may be limited to exchanges’ opening hours and will often have access to lower leverage compared to forex.

Indices

Trading indices have grown in popularity as alternatives to forex trading with retail investors benefiting from exposure to an entire sector with one position. Rather than relying on a single currency pair, an index provides exposure to a large section of a market at once, for example, technology firms.

Indices are essentially a measurement of the overall price performance of a group of shares within an exchange. They are usually less volatile than forex pairs, as price movements are balanced between the companies within the product.

Importantly, there are many types of indices, including those that track the performance of an exchange or part of an exchange, indices like the famous S&P 500 that track the largest companies in the US, sector-specific indices, plus products like the Volatility Index (VIX) that track market sentiment.

Cryptocurrencies

One of the newest alternatives to forex trading is cryptocurrencies. The digital asset class has captured a huge section of the retail trading market since the first crypto, Bitcoin, hit the internet in 2009.

Cryptocurrencies are very risky assets to trade since they are susceptible to huge price swings and are largely unregulated. But the extreme volatility and the free-and-easy innovation in the crypto sector have led to some large profits over the last decade. Bitcoin went from being almost worthless on its release to hitting an all-time high of more than $69,000 in 2021, and there is a long list of newer cryptos that have followed a similar if less extreme trajectory.

Cryptos can be traded in a similar way to currency pairs on central exchanges. However, they can also be bought and sold through trustworthy brokers such as eToro and IC Markets, which offer crypto CFDs, allowing traders to speculate on price movements without buying and storing the underlying tokens.

How To Trade Alternatives To Forex

• Choose a good broker – Whatever alternative you choose to trade, finding the best broker is a key step. Choose a broker that is trustworthy, regulated and reputable, with competitive fees, reliable tools, and good customer service.
• Research the market – Each market works according to its own dynamics, so if you are moving to a new asset class after trading forex you will need to adapt your strategy. Spend time researching the market you enter so you can make the strongest start trading your chosen alternative to forex.
• Practice on a demo account – Choosing a broker that offers a demo account is a useful ‘hack’ that will allow you to practice new strategies on alternatives to forex. You can trade with real money when you feel confident in your approach.

Final Word On Trading Forex Alternatives

If you want to steer clear of forex markets, there are several good alternatives available. Becoming familiar with the best alternatives to trading forex can allow flexible switching to maximize profit potential during market events. Trading forex alternatives can also help retail investors build a diverse portfolio.

FAQ

What Are The Best Alternatives To Trading Forex?

There are many alternatives to trading forex including stocks, indices, ETFs, and commodities. These may provide less volatile market conditions and more stable returns for longer-term traders. For investors with a large risk appetite, cryptocurrency is another popular alternative to trading forex.

Are There Safer Alternatives To Forex Trading?

No investment is 100% safe regardless of the trading product. With that said, some forex alternatives are arguably less volatile and risky, including stocks, indices, commodities, and ETFs. Trading cryptocurrency, however, usually comes with more volatility and risk than forex.

Should I Consider Forex Trading Alternatives?

Which trading instrument to choose is often based on personal preference. Achieving substantial profits trading currency pairs is challenging given the significant volatility of the market and stiff competition from institutional investors. Traders may want to consider alternatives such as stocks, commodities and cryptocurrencies.