Here’s what you should know!
Stocks vs Forex – Five Major Differences
Although these two markets are interlinked, stocks and forex are still very different from one another. If you have a specific trading style, it will probably be easier for you to pick the market you want. However, it’s always good to know their differences, which will help you make fully-informed decisions. Forex vs stock’s main differences come down to volume, liquidity, market hours, commission, and narrow/wide focus.
- Volume. Forex has a much bigger volume than the stock market. With over $5 trillion, investors ready to trade Forex every day. In contrast, the stock market has an average of $200 billion per day in trades. A large trading volume can get considered as an advantage. It is more likely to give traders the flexibility to open/close positions closer to the prices they want.
Liquidity. More liquidity makes it easier for traders to enter/exit the market. The higher the volume, usually means higher the liquidity. And as a result, provides tighter spreads with lower transaction costs. Popular forex duos usually have very low spreads and transaction costs. Which is actually one of the top advantages of forex against stocks.
Market Hours. Forex is open 24 hours a day, 5 days a week, and brokers are usually open from Sunday at 5:00 pm EST, until Friday. Stocks, but, are a bit more limited. Most U.S. stock exchanges open at 9:30 am eastern time on weekdays (except stock market holidays) and close at 4:00 pm EST. On early-closure days, right before or right after a market holiday, regular stock trading ends at 1 p.m. ET. So, forex seems more flexible than the stocks markets. Since you have access to trade during the U.S., Asian, and European market hours. Having the chance of customizing your own trading schedule.
Commissions. Most forex brokers don’t ask for commissions anymore, but profit from the spread’s margin (aka buy/sell price). With stocks, traders are often asked to pay both commission and the spread. But this varies between brokers. Usually, yet, forex spreads are much more transparent compared to other markets.
- Narrow/Wide Focus. One of the biggest differences between forex vs stocks is the trader’s focus. Forex traders concentrate on 8 most traded currencies:
- U.S Dollar (USD)
- Japanese Yen (JPY)
- European Euro (EUR)
- British Pound (GBP)
- Canadian Dollar (CAD)
- Swiss Franc (CHF)
- South African Rand (ZAR)
- Australian/New Zealand Dollar (AUD/NZD)
This gives them a wider focus since they need to consider factors. Some of those factors are unemployment, inflation, and GDP (Gross Domestic Product). These are changing monthly.
Stock market traders have thousands of options to choose from. But the basic things to look out for are its cash flows, earnings guidance, and debt levels.
Trading Forex Vs Stocks Styles and Risks
At the end of the day, it all comes down to what kind of trader you want to be, and how much you are willing to risk. (Risk is inevitable when trading by the way!)
Short-time traders usually open/close positions in small periods of time (minutes). Looking at price movements and then buy/sell.
The pros are that they depend on volatility than fundamental affecting the market. The cons are for beginners for they might lose more money until they establish a certain strategy.
Medium-time traders are the type where they hold onto positions for a longer period of time (more than a day). Usually expecting bigger moves in the market.
The long-term type can hold onto their trades for months. Even years but this will mean larger fund requirements for protection during volatility.
The best market is…
Well, unfortunately, there’s no right or wrong answer. (Sorry!)
It all comes down to the type of trader you want to be. The style you choose to trade in, how much time and money you’re willing to invest, etc.
Before making any decisions on which market to proceed with, it’d be good to test your trading strategy and goals.
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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.