Stock markets and currency markets are two of the world’s most popular financial markets and understanding the forex vs stock market is important. Both have large numbers of historical transactions, volatility, and educational resources. However, a trader’s choice of the market is dependent on their personality, experience level, and preferred trade pace.
Generally speaking, forex tends to appeal more to those who prefer to make quick trades over short periods. What is Forex Trading? Forex is a liquid market with many buyers and sellers, so many profit opportunities exist. The stock market typically appeals more to investors with a longer-term strategy in mind. The process of buying shares can take longer as it involves more steps than trading forex.
Forex Market Versus Stock Market; Overview
The Foreign Exchange market, also called FOREX or FX, is the global market for currency trading. In its simplest form, forex is a game of speculating on currency exchange rates. If you want to start trading Forex, check out this guide for forex trading beginners.
For example, if you think that the dollar will fall against another currency (say the Canadian dollar) over the next three months, you can short the Canadian dollar and make a profit. Or, if you think that the Canadian dollar will rise against another currency (the U.S. dollar), you can go long on the Canadian dollar and make money. It is important to know the difference between the forex and the stock market.
Stock trading is also about predicting what will happen to the market values over time — but with stocks instead of currencies. Traders buy stocks expecting that they’ll increase in value over time — assuming nothing bad happens like a corporate earnings miss or other adverse news items.
To buy a stock means to own a piece of a company. To sell a stock means you no longer own that piece. When you trade on a CFDs platform, you own a contract for difference, not a real stock.
Difference Between The Forex And The Stock Market
Trading Hours: The stock market is available only on weekdays from 9:30 AM to 4 PM EST, while the forex market is open 24 hours a day for five days a week. Because the forex market is available 24 hours a day, it allows traders to speculate on its value at any time during the day or night. However, it’s not always active during these 24 hours because there are four significant sessions where most of the trading occurs.
Accessibility: The forex market is far more accessible than the stock market because there’s generally no minimum amount required to open an account. You can even open a micro account for less than $100. In the stock market, registration requirements dictate that you must register with a brokerage firm and open an account with a minimum of $25,000. You can trade stocks on margin with a margin account if extra funds are deposited into your account.
Volatility: The forex market is known for its strong trends, making it more volatile than the stock market. This higher level of volatility means that there are more price swings and, therefore, more opportunities for traders to make a profit. Note that this also means that it involves more risk in trading forex than stocks.
Trading Costs: Stock trading commissions are typically lower than those related to forex trading. In addition, there’s no cost to borrow a stock if you’re shorting it. Whereas there is a cost to borrow currencies when trading them on margin (more on this later). However, this doesn’t mean that forex traders pay higher commissions than stock traders; for example, IMGFX offers commission-free forex trades for specific currency pairs. You can practise trading risk-free with a demo account.
Leverage: Forex trading allows you to use leverage (borrowed money) of 500-to-1, whereas stock trading tends to allow lower Leverage. The amount of leverage you use will depend on your broker and what you feel comfortable with. Make sure you understand the concept of leverage before starting trading.
Liquidity: The forex market’s liquidity is partly because there is no centralised marketplace for forex trading. Trades are executed over the counter and around the clock. There are also more participants in the forex market. In contrast, stock markets are centralised exchanges where buyers and sellers meet to execute orders.
The stocks and foreign exchange markets are trading mechanisms for companies or investors to buy and sell value contracts. Knowing the differences between the Forex vs. Stock Market is important.
These markets are competitive and demand a high level of knowledge and strategy. The lack of a clear trading strategy is one of the reasons why traders fail. Both markets are volatile, can be considered gambling, and can be worthwhile, profitable ventures. Trading stocks, in particular, is a bit more challenging to start with. That is because you have to wait for a stock to move to make a profit.
Sometimes, a company’s value takes years to appreciate enough for any significant gain over the likes you’d get from the Forex market.If you want to start trading on the forex market, sign up for a live forex trading account!