Two of the biggest and most popular financial markets many trade in are the stock and the forex markets. Both of these markets have been around for a long time now. However, today’s accessibility to the Internet has made it more convenient for people to start acquiring stocks and trading currencies.
Because of trading’s accessibility to anybody today, many people enter the market mindlessly without understanding its nature. The result of those impulsive decisions to join the stock and forex market often causes traders to lose enormous amounts of money. One of the reasons that happens is because they only follow the advice of the people they know and do not voluntarily learn about the market they’re trading in.
Today, there are many online courses on how to trade shares, forex, and stocks for starting traders to utilise. But despite that, they still start despite their knowledge insufficiency about the differences between the markets most people use today. If you’re one of the many looking into trading and are deciding between stocks and forex, this post is for you.
1 – Trading hours accessibility
One of the differences between stocks and forex is their trading hours. People looking into trading in forex can access the market twenty-four hours a day, five times a week. The only days the forex market is closed are on weekends.
On the other hand, people considering stocks can only access the market on the schedule of the timetable available for their stock exchange market. There’s a daily timetable for the trading hours of the stock market. In terms of flexibility, forex trading wins, especially if you have a tight schedule and wish to trade at any time of the day.
2 – Assets for trading
The primary difference between the stock and forex markets is the assets you can trade. In forex, the assets you trade are currency pairs. There are about three hundred thirty currency pairs you can trade, buy, and sell in forex. That includes the major, minor, and exotic currency pair types you can choose from.
The stock market, on the other hand, allows traders to trade thousands of global shares of different companies from almost every industry. You can acquire and trade shares from technological, pharmaceutical, automobile, retail, and more. If you wish to own a portion of your favourite company or brand, the stock market may be for you.
3 – Volatility
It’s true that both the forex and stock market are highly volatile. The risk of trading is high since stocks and forex rely on financial transactions and movements. But despite being volatile, forex traders can take advantage of sudden market changes because it allows them to open and close positions with a high probability of earning a profit.
On the other hand, stocks can be more risky because many sudden phenomena and events could occur and alter the market’s movement. Though the chances of this happening are low, it could incur massive losses to investors and traders. The forex market could also incur huge losses, but these are preventable if you research and monitor the performance of the countries you’re trading currencies with.
4 – Liquidity
If you ask financial traders what is the most liquid financial market in the world, they’ll likely answer the forex market. Since the forex market is open twenty-four hours a day, five times a week, there’s no doubt that it’s the most liquid financial market. On top of that, with the numerous currency pairs traders can choose from, it’s easy to trade, buy, and sell at your convenience.
Those features make the stock market less liquid than forex. One of the reasons is that it could take days to settle trades. It’s more likely to happen, especially if you’re trading shares from companies that are not as popular as the major ones, like Coca-Cola, Apple, and Microsoft.
5 – Margin rates
Professional traders say that the margin rates of the forex market are lower. Usually, it starts at around 3.3%, a leverage equivalent of 20:1. In most cases, the amount of margin in forex is usually a percentage of the size of the forex positions. It also varies depending on your forex broker.
On the other hand, the stock market has fewer risks because of its 20% margin rate and a leverage ratio of 5:1.
6 – Trading strategies
The last difference we’ll discuss in this post is the trading strategies you can use in forex and stock trading. If you decide to trade forex, you have a lot of trading strategies to utilise. That includes day trading, swing trading, and scalping. Learning about these forex trading strategies is advantageous because it teaches you how to earn profit.
On the other hand, resources and tips regarding stock trading are limited and less compared to forex. One of the reasons is traditionally, stock acquisition is long-term. Forex may be the better option because you have the resources to utilise your trading if you look to trade short-term.
The answer to which is better would depend on your preferences.
Indeed, both the stock and forex markets are great. The differences I discussed above are not to make one look less profitable or appealing. Instead, these differences highlight which market would work better for your availability, trading term, and investment capacity. Overall, I recommend taking online courses first to familiarise yourself with the market you plan to enter if you wish to start trading.
Written by Bianca Banda
