Top 10 List of Differences between Forex and Stocks

Difference between Trading in Forex Market and Trading in Stock Market

Why isn’t Forex as Popular as The Stock Market?

Trading in forex market has been happening for more than 6 decades; it is now after 1996, that forex market is available to trade as a retail market for all independent traders and private investors. This has become possible with the help of the internet and the latest computer technologies. Previously only big boys like major banks, governments, hedge funds and very rich people were able to trade the forex market.

Trading in Forex Market vs Trading in Stock Market

The answer to this question is a personal call of every investor or speculative trader because if you ask this question from a forex broker, he will reply you with all the answers which provides benefits in trading forex market over stock market and the same type of answer if asked from a stock broker.

I personally recommend that forex market is the best market for speculative trading in the whole world, but still i suggest that you your self should practically analyze the difference between forex market and stock market and after that make a call as which market is best for you to trade.

Below is the list of all the key points, with the help of which forex market is gaining popularity and becoming a favorite of all speculative traders, over trading in the stock market.

Difference between Trading in Forex Market and Trading in Stock Market

1. Trading Hours –

The trading hours of stock market is different in every country, but on a general basis, stock market is available to trade for 8 hours a day, whereas forex market is a true 24 hours trading market: it is open for all the 24 hours and 5.5 days every week.

2. Trading Marketplace –

All the trading in the stock market is transacted through the stock exchange, whereas forex market is a decentralized market and all the trading activity are considered as the O-T-C (over the counter) which means the trade between the broker and trader is transacted as per the agreement and in the order, which is best suited by the trader via pc, laptop, tablet or mobile.

3. Trading Commissions –

In the stock market, we cannot trade without a middleman which means we have to pay the commission to the brokers along with service charges and taxes, whereas there is zero commission for trading in the forex market, the only transaction charge, which we pay, is the spread between the buy and sell price of the currency pair. Due to increased competition many forex brokers are now offering razor thin spreads as, so the transaction cost is minimalist while trading forex.

4. Liquidity –

In the stock market many times a situation comes when the stock has reached its peak or its bottom, resulting in shrinking trading activity and volumes. As a result, it becomes hard for a trader to open or close his position and convert the profit into real cash. Whereas in forex market, the daily turnover of trading value are $5 trillion which is more than approximately 15 times the volume traded by all the stock markets of the world as, so such a thing does not happen because, the liquidity in forex market is provided by very large participants, which are the super duper banks, governments and large hedge funds. Trading can be quiet sometimes, but there is no problem of liquidity for the execution of our trade.

5. Trading Speed –

All orders in the stock market are passed by the stock broker to the trading floor of the stock exchange which can take a couple of extra seconds for the trade to be executed, whereas forex market has a superior liquidity; there is no doubt that a trade could be rejected because of liquidity, and forex trading is done O-T-C (over the counter) which means the trade is executed instantly.

6. Complexity –

In the stock market, thousands of stocks are available to trade which means we have to do a lot of scanning and searching to pick the best stock for us to trade, whereas in forex market, the largest share of trading, which is 85%, is done by only 8 major currency pairs, which means we do not have to waste our precious time for scanning and searching as which currency pair we should trade.

7. Leverage –

The minimum funds, which we require to trade, any particular speculative unit, is called leverage. In the stock market, the leverage offered is normally around 5:1, whereas in forex market, the leverages start from 50:1. Many forex brokers offer a normal leverage of 100:1, which ranges up to 500:1. Yes, we get the control to trade $5,000,000 by only depositing $10,000.

8. Trading Can Be Done Either Ways –

If we want to invest in stocks, we have to trade only one side which is we buy lower and sell it on a higher value; we cannot “short” sell if we speculate that the stock price would decline. In forex market, we can trade either ways i.e. If we speculate the currency value will rise, we can go “long” i.e. Buy and if we speculate that it will decline then we can go “short” i.e. Sell before and buy later at our desired price.

9. Ease of Entry i.e. Lowest Capital required to Trade a Speculative Market –

In any other stock market, or commodity market there is a fixed minimum amount required to trade or invest in a stock or commodity and further we have to maintain a minimum balance in order to keep our account running and for maintenance. In forex market, we can easily start trading by investing as low as $100 and experience the same trading benefits provided to a $10,000 funded account.

10. No One is able to Corner the Market –

Stock markets are often seen that due to any buy sell program or analyst’s statements or due to high volume buying and selling of any particular stock, it affects the entire balance of the stock exchange, whereas, forex market is the biggest speculative trading market in the world. It is backed by super-duper banks, governments, large hedge funds, corporate sectors and many more as, so it is almost impossible to corner the forex market by any single group of individuals or companies or government.

Trading currency in the forex market has lots of benefits when compared with the stock market. No doubt, forex trading has an edge over the stock market. It is advisable to at least consider adding diversification to your portfolio by exposing it to the currency markets. However, as with everything else in trading, it is a matter of your own personal preference, risk tolerance and diligence in the end.

I enjoy trading forex and wish you happy and profitable forex trading.

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