When choosing to trade Forex or stocks, it’s essential to know which trading style suits you best. Traders sometimes compare Forex vs. stocks to decide which market is best for trade. Even though Forex and stock have similarities, Forex and stock market are different from each other. But, knowing the differences and similarities between the stock and forex market will enable traders to make decisions on which one to choose, based on some prominent factors such as market conditions, liquidity, and volume.
What is forex trading and stock trading?
Forex is a short form of “foreign exchange.” It merely means the process of buying and selling different currencies. While Stock trading involves buying and selling individual shares of a company which is called stock. A share of stock is a small piece of ownership in a company. 2 main types of stock traders who exchange stocks for profit, they are; Day traders and Active traders.
Similarities between stock traders and forex traders.
- Forex and stocks trader uses the same popular strategy, technical analysis.
- Stock trading and forex trading use brokers to facilitate transactions.
- Forex traders and stock traders depend on relatively short-term trading strategies.
- Forex traders and stock traders primarily rely on technical analysis when they decide what they should buy or sell.
Differences between trading forex and stocks
- Trading Hours
Both the Forex market and stock market function in strict timing. The Forex market operates 24 hours a day while the stock market usually operates for 7-8 hours in three trading sessions.
- Difference in Leverage
Leverage is the minimum amount that we require to trade any particular asset unit. Therefore, the stock market, the leverage offered is around 5:1 while In Forex market, the leverage is ten times more than the stock market that is 50:1 at least or more than that.
- Trading Speed and Complexity
The Forex market has superior liquidity as compared to the stock market. Forex trading is done over the counter, which means trading is executed immediately. in stock market you need to wait for the order to get executed because of the broker in between the trade.
- Market Size
Many traders prefer the forex market. Every day, the forex market sees about $5.1 trillion worth of trades. This makes the forex trading market the largest exchange in the world by far. While the stock market is significantly smaller than the forex market. The NYSE sees about $169 billion worth of trades each day operations.
Pros and cons of the stock market
- It is effortless to get started
- Higher volatility.
- There are massive number of stock to be trade
- There are limited hours.
- It involves Pattern day trading laws.
Pros and cons of the forex market
- It involves a few trading options
- Lower financial bar for entry
- There is more liquidity in the forex market
- The platform options involve few.
- Danger of leverage.
Understanding both Forex and stock trading can help you determine which type of trading you will achieve your goal and trading style to use because Forex and stock trading are profoundly different forms of trading based on short-term price action. They differ in terms of the regulations surrounding trades, the size of the markets, time of trading and the liquidity & volatility of prices.