Forex Trading vs. Stock Trading

When first deciding to take up trading, a trader may face one of the biggest dilemmas – what to trade: Forex or stocks? In fact, at first sight, Foreign Exchange market has many similarities to the stock exchange market, but it is worth mentioning that Forex trading and stock trading are quite different forms of financial trading. There are a number of differences between Forex and stock trading that each novice trader should be aware of in order to be able to make the right choice.

Liquidity

Foreign Exchange market is considered to be the largest and the most liquid financial market in the world with an average daily turnover of $5 trillion. Foreign Exchange market is always moving and traders from all over the world are buying and selling currencies of various countries despite of time zone and geography. Due to high liquidity, one of the main advantages of the Forex market over the stock market are the margin requirements: in the Forex market margin requirements are low and in the stock market just on the contrary – they are rather high.

Trading instruments

When talking about the main differences between the Forex and the stock markets, one of the first things that comes to mind is the number of the trading instruments offered. The stock market offers a great variety of instruments to trade, since there are various stock exchanges in the world such as the New York Stock Exchange, the NASDAQ, the Australian Stock Exchange, etc., and there are thousands of stocks listed on each of these stock exchange markets. The Forex market, on the contrary, has very few options. Most Forex traders focus their attention and efforts on seven currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD) and this makes Forex trading much easier, because instead of picking between thousands of stocks to find which one is the best, the only thing a Forex trader needs to do is to follow the economic and political news of these seven countries to be able to make the right analysis.

Commission

Commission is the payment that a trader pays to a brokerage company for placing an order. In the Forex market, there are no or low commissions and the brokerage companies compensate their services through the bid/ask spread. In contrast, when trading stocks, traders need to pay commissions, which varies from broker to broker.

Trading hours

In general, the Forex market operates 24 hours a day from Sunday at 5pm EST to Friday at 5pm EST. Stock exchange markets, on the contrary, are open only at certain hours of the day, which surely may not be convenient for your time zone. Being able to trade in the Forex market 24 hours a day and 5 days a week is a real advantage since traders can easily access the market anytime during the day and what the most important is get more trading opportunities.

The above-presented comparison can be a helpful guide for those, who want to enter the boundless world of finance and wonder which market is the best. It is highly advisable to examine each market carefully and learn all its nuances in order to be able to avoid undesirable losses.