Forex vs Stocks – Difference between forex trading and stock market
The main difference between forex and stocks is that the forex market is highly liquid and has large volume (Around $6 Trillion per day) and the stock market has less volume (Roughly $200 billion per day); that forex is 24 Hour Market and stocks usually 8 Hour Market; that forex has minimal or no commissions (stocks can have pretty high commissions).
So, is forex trading the same as stock trading?
Stocks and forex trading are based on buying and selling asset prices. Stocks as buying and selling shares of individual companies and forex trading as currency exchange are very similar during the process of opening and closing the trades and both assets trading are based on the same principles of technical analysis. However, fundamental analysis is different for stocks and currencies.
Forex leverage can be considered as the main reason why many traders choose forex for the stock market. Below is the comparison between stock and forex trading that one must be aware of.
There are various criteria one should meet before they do stock trading. It is not necessary that every shareholder is accepted for a margin account. This is what one should know about stock trading.
But this is not the case with forex trading. It is not like stock trading. To do business with leverage, one can easily sign up for a forex trading account. You just need to choose a good forex broker. The account opening process is fairly simple. No criterion for opening an account is required. In us, one is restricted to leverage of 50:1, whereas it changes from country to country.
One important difference between forex trading and the stock market is that trading of stocks means that one is purchasing shares of organizations that may cost from thousands of dollars. Due to the change in demand and supply, market-rate also differs. But if one is trading on forex then it is completely different from above. Even though the supply of a currency in a country is changing then also there is a huge quantity of money accessible for trading.
So, is forex safer than stocks?
Some periods in financial markets are better for stocks trading (strong rising stocks period) and some periods are better for forex trading (range stock market and strong trends in the forex market). But this usually is connected with trader strategy.
In trading of currencies, they are estimated in pairs. You are not only one to be worried about the economic wealth of the nation whose money is being traded and also with the economic wealth of the nation one is trading next to. An Individual’s worry differs from a market to another market. If one purchases the shares from Intel, their main worry is whether there will be any increment in the stock value. And one is less worried about the stock rates of other organizations. But this is not the case with forex. If one is purchasing or putting up for sale on forex, they have to think about the economies of both the nation. A winning trade on forex needs an examination of two financial entities and not examining only one entity. Forex also exhibits sensitivity to political and economic problems in different nations.
Rate sensitivity to trade movement
Stock trading and forex trading have different cost sensitivity to trade movement. Purchasing stock of ten thousand shares will have an impact on the stock rate. This is in the case of smaller organizations with fewer shares. As compared to stock trading, forex trade will have a very little or negligible impact on the currency’s market price.
There is larger freedom from guidelines
Stock trading may have many rules and regulations on the main exchanges. But this is not the case with forex trading. There is less regulation in forex trading. This regulation and limit on major exchanges force limits which one may not likely to welcome. It also provides protection to other investors to some extent whereas forex does not provide all these things.
The stock trading market has less accessibility than currency markets. It is now easy to trade stocks twenty-four hours per day and five days a week. Also, the trading of stock is not very easy. Most investors trade with a U.S. brokerage with trading time from nine-thirty am to four pm. Due to fewer trading hours, it discourages investors. But this is not the case with forex. Investors can easily trade six days a week and twenty-four hours per day. As forex has many traders, it is always trading in different time zones.
But in forex trading provides you to go short on a currency pair. These two positions have the same risks. Precautionary limit losses are not at all needed.
Final choice is yours
Many investors are well familiar with stock trading rather than with forex trading. The possibility of leveraging creates it simple to manage a large number of trades without any particular requirement. These are the advantages of forex trading. But taking part in forex trading also increases investment risk as well.
The most common question is: forex vs stocks which is more profitable? There is no consensus about this topic. Stocks over the years can raise and can be a good choice for long term investing but forex can be profitable too (do not forget that bigger leverage can give you a bigger profit). The best thing is to specialize in some trading niche (only dow stocks, only indexes or only major forex pairs or only gold, etc.)