Forex market and stock markets are the two popular markets among traders and investors. Even though both are financial markets, a trader needs to know that trading in the forex market is different to a great extent from trading in the stock market.
While stock trading refers to buying and selling the shares of various companies, forex trading deals with buying and selling of foreign currencies.
Some traders prefer the forex market due to its enhanced leverage while others prefer the stock market due to its regulatory safeguards. Forex Market allows for enhanced leverage with many top Forex brokers upping the maximum to 400:1 for certain major currency pairs. Such high levels of leverage are great for those completely new to trading who are looking for higher profits but need minimal investments. The stock market, on the other hand, offers greater regulatory safeguards for those who want more secure trading.
If you are a novice trader and planning to invest in the financial markets but are confused about which market you should trade with, then must read this article.
Here is a detailed analysis of the differences between forex trading and stock trading and an insight into the factors that you should consider before making a choice.
1. Factors affecting trading prices
The major factors that affect prices in the currency market are related to the economy such as interest rates, inflation, current account deficit, gross domestic product (GDP), etc. So, forex investors and traders need to focus on the macroeconomics of the country.
Prices in the stock market fluctuate based on the financial condition of the company, expansion plans, corporate earnings, etc. The most important factor above all that affects the prices in the stock market is the individual performance of the company. Therefore, traders need to do more company-specific research in stock trading.
2. Market Trading Hours
Another major difference between the forex market and the stock market is of the trading hours. The forex market remains active 24 hours a day, 5 days a week, from Monday to Friday, in different parts of the world. The overlap between time zones makes forex trading hours for a whole day. This is one of the greatest advantages of forex overstocks.
On the other hand, there is a fixed daily timetable for trading in the stock market, depending on the specific region and exchange. Some exchanges also close for a lunch break, particularly in the Asia-Pacific region.
Liquidity refers to the ease with which traders can sell or buy their assets in a particular market. Liquidity is directly proportional to the trading volume, the higher the trading volume higher the liquidity. High liquidity means more chances of your trade being successful.
The forex market is the most liquid and the largest financial market in the world.
In the stock market, market price varies with supply and demand.
The stock market, on the other hand, witnesses fewer trades per day, even though it remains highly liquid.
Which Market is More Profitable, Forex or Stocks?
Taking into consideration the above-mentioned points, it is not easy to conclude which market is more profitable. Hence, while choosing a financial market, you should take into consideration all factors including trading goals, personality type, and risk tolerance.
If your goal is to make small in short term, then you should choose forex. On the contrary, if your goal is to trade using a buy-and-hold approach for long terms, then you should trade stocks.