When you are looking to trade in the financial markets, you have a few different options to choose from. Two of the most popular choices are stock trading and forex trading. While both can be profitable ventures, there are some key differences between the two.
In this article, we will take a closer look at 7 of the main differences between stock and forex trading. By understanding these differences, you can make an informed decision about which type of trading is right for you.
So let’s get started!
Market trading hours
Forex traders can participate in the foreign exchange market anytime they want during work hours. However, there are times when it becomes more active than others and this affects how you trade forex.
For example, with stocks, stock markets have “session” periods where trading occurs at set times each day – between 10am -1pm on weekdays or 6pm-9pm Saturday evenings. Whereas forex market hours have 24-hour coverage so no matter what time zone one resides within – all days of the week will offer opportunities for profitable investment.
Leverage
Using the high leverage in forex makes it an attractive activity for many traders, – but also increases risk. Only after managing the risks, it is worth trading with high leverage forex brokers. The newbie traders who don’t want to risk can select an option of micro forex accounts to trade with the smaller size of currency or other instruments.
In the case of the stock market, it typically has much smaller leverage and makes for a safer market by comparison.
Liquidity
Forex has high liquidity because it is an essentially infinite supply. The influence of market makers on liquidity can be big as well. Stocks, on the other hand, are limited by how many shares exist and what those represent. For example, blue-chip stocks will typically have more availability than penny stocks which can sometimes mean they’re less competitively valued or don’t trade as frequently due to their lower market cap per share number (which tells investors about price).
Volatility
The forex market is less volatile than the stock market. Exchange rates in major currency pairs rarely change more than 1% during a day, making them suitable for high leverage trading with low risks associated with it (or no risk at all).
While the stock market is a lot less stable. Individual stocks can gain more than 5-10% per day during strong bull trends, which makes them suitable for trading with low leverage or no leverage at all.
Regulation
Forex traders have to follow different rules than stock investors because they are not regulated by US agencies. Forex trading is not subject to the same level of regulation as other financial markets like stocks and futures.
The main goal of these regulations is to protect retail investors from prevalent frauds found across international borders.
Market Size
Forex trading is a global business, but it is also very local. While stocks are traded internationally on a mega-scale with millions of people playing in the market at any one time and across many exchanges around the world there can be long wait times for your turn to buy or sell because everyone wants what you’ve got (or think they do), forex traders have an opportunity right now that never goes away: liquidity! That means when we say “today” our clients mean ‘tomorrow’ so whether in some countries the market opens and on the other side of the world it is closing.
Catalysts and Price Influencers
Forex and stocks are two of many financial markets that can be affected by the news. The types of stories affecting these currencies differ, however, forex is typically moved based on global issues while stock prices respond more often than not to company-related developments or sectoral trends within individual economies themselves. In addition, political events might trigger wild fluctuations if traders believe they will have any kind of significant impact near term – which is not always true but definitely worth watching.
Conclusion
The article introduced you to the 7 main differences between stock trading and Forex trading. Depending on your goals and investment strategy, one type of trading may be better suited for you than the other. If you’re still undecided about which type of trading to pursue, consider speaking with a broker or a financial advisor to get their professional advice. In the end, only you can decide what’s best for your personal situation.
