In the 21st century, online trading is getting more and more popular day by day. As a result traders often compare Forex vs. stocks to figure out which market is better for trading. Although being linked, Forex and stock market have a vast difference.
The Forex market has unique characteristics that distinguish it from other markets, and in the eyes of many people, also makes it far more attractive to trade.
So, I’ll be comparing these two markets on several points but the final decision is yours. Therefore, without any further ado, let’s begin.
One of the biggest differences between Forex and stock market is the size of the Forex market.
Forex is estimated to trade around $ 5 trillion a day, with most trading concentrated in a number of major pairs such as EUR / USD, USD / JPY, GBP / USD and AUD / USD.
Forex market volumes reduce the volume of dollars from all combined world stock markets, which average around $ 200 billion a day.
Though it has a high trading volume that’s why it is full of advantages for a trader. High volume means traders can usually run their orders more easily and closer to the price they want.
While all markets are vulnerable to disparity, having more liquidity at each price-setting point better-equipping traders to enter and exit the market.
Markets that trade in high volumes generally have high liquidity. Liquidity causes tighter spreads and lower transaction costs.
The main pairs of Forex usually have very low spreads and transaction costs when compared to stocks and this is one of the main advantages of Forex market trading compared to stock market trading.
24 Hour Market
Forex is a free market, which means it is not transacted through traditional exchanges. Trading is facilitated through the interbank market.
This means that trade can take place throughout the world during the working hours and trading sessions of different countries.
Therefore, Forex traders have access to trade almost 24 hours a day, 5 days a week.
The main stock indexes, on the other hand, are traded at different times and are influenced by different variables. Visit the Main Index page to find out more about trading this market — including information about trading hours.
Minimum or no commission
Most Forex brokers don’t charge commission fees, instead, they make their margins on the spread — which is the difference between the purchase price and the selling price.
When trading equity (stocks) or futures contracts, or major indices such as the S&P 500, traders often have to pay spreads together with the commission to the broker.
Forex spreads are quite transparent compared to other contract trading costs. Below you will see the spread of EUR / USD highlighted in the exchange rate of an executable transaction.
Spreads can be used to calculate costs for the size of your position in advance before being executed.
Narrow focus vs wide focus
There are eight major currencies that can be the focus of traders, while in the world of shares there are thousands.
With only eight economies in focus and because Forex is traded in pairs, traders will look for divergent and converging trends between currencies to match Forex pairs to trade. Eight currencies are easier to monitor than thousands of shares.
Exchange v / s OTC
The stock market is traded on a stock exchange. One of the best-known examples is trading shares on the stock exchange such as the New York Stock Exchange (NYSE).
Trading on the exchange comes with certain benefits. For one, traders and investors get access to order books that keep records of purchases and sales.
This can be very useful for traders or investors who follow technical or fundamental analysis. Trading on the exchange is considered far safer.
Looking into the Forex market, trading is carried out freely. Unlike the stock market, there is no centralized exchange for the Forex market. Transactions are carried out privately between the buyer and seller.
Such transactions carry the risk of defaulting on an opposing party.
Cost of entry
Stock trading usually requires a capital that is far greater than what you need to trade Forex. Therefore, for most investors or average speculators, Forex seems to be an easier way to enter the financial markets.
Although it may seem easy, Forex trading utilizes leverage, which is needed so that small speculators enlarge their control units when trading Forex. This is beneficial and not profitable for speculators.
While profits can be large, losses can be as large until they have the potential to remove invested capital.
Also Forex market guarantees the best trading technologies. Which can help you make decisions also can generate signals but everyone prefers human touch signals because Forex market moves a lot and experienced traders calculate a lot of things and then generates accurate Forex trading signals.
In stock trading, you can usually trade with a maximum leverage of 2: 1. There are also several qualification requirements before you can do this. Not every investor is approved for a margin account, which is what you need to improve in the stock market.
Online Forex trading is very different. To be eligible for trading with leverage, you can simply open a Forex trading account.
There are no qualification requirements. In the United States, you are limited to 50: 1 leverage, but in other countries, you can increase as much as 200: 1.
Most investors are more familiar with the stock market than with Forex, and that familiarity might be entertaining.
The comparative freedom of regulation regarding Forex and the high degree of leverage makes it easy to control large trades without special qualifications and with a limited amount of money.
That’s the positive side of the Forex market, but also the negative side. Participation in Forex increases investment opportunities and risks.
So, which one do you prefer? Please let me know