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The very first difference is quite obvious — what you are trading! The forex market is the conversion of one currency into that of another on the currency market. The stock market, however, is where a stock trader is involved in the buying and selling of ownership in a company and is a significantly smaller market in terms of value.
The units of measurement for ownership are known as shares and you can start trading stocks on places like the New York Stock Exchange. Once you learn how to trade forex and penny stocks, you can choose which to trade. There are a few different factors affecting why you should trade Forex over penny stocks or vice-versa. The forex market is a truly global marketplace as it is accessible from anywhere in the world and trading on major currencies is available 24 hours a day, 5 days a week.
Day trading can occur over several time zones, meaning when one zone closes another will be open. For example, when trading during London hours closes, the marketplace in Sydney will be in full flight. Marketplace zones can overlap too, resulting in a highly active foreign exchange for forex traders, such as when London and New York trading hours overlap around The stock market has a significant limitation on trading time.
Companies are listed on specific stock exchanges, so stock traders can only trade certain penny stocks within the designated hours of that exchange. This means that stock traders can only trade on a single exchange for 8 hours a day.
When it comes to sheer market volume there is no competition between forex vs stocks. That high trading volume does come with some pretty big advantages. High volume on the largest financial market typically means orders are executed much easier than stocks and at a price closer to what the trader wants. High volume also typically means high liquidity. With high liquidity also comes tighter spreads with much lower transaction prices. Therefore forex spreads are much lower than stocks meaning the difference between the bid and ask price is much closer.
Liquidity in the stock market can vary greatly between individual stocks — A particular stock that does not have sufficient volume will have low liquidity as it cannot be bought and sold as easily as a stock trading at large volumes.
Why trade forex if your motivation to trade is based on companies and businesses? You even simply want to invest in a concept you are passionate about such as electric cars and want to buy Tesla stock. Perhaps you still hold a day job and just want your money to work for you? Stock trading suits the long-term trader who aims to hold a position for a period of months or even years. This style of trading often requires much more capital in order to cover your investment during volatile movements.
However, stock trading in this fashion can be very profitable. Imagine investing in Apple stock when the company first went public in and holding onto the stock past the launch of the iPhone! If you are unable to muster the capital required or you cannot manage to be available during the specific stock market trading hours, then FX trading may be the better option for electronic trading.
Key differences include the fact that forex day trading exists 24 hours a day, 5 days a week without specific trading sessions. You can trade on future price movements on one currency or currency pair whenever you want, rather than the specific 8-hour window of trading sessions offered by stock exchanges.
Forex day trading also requires most forex brokers to have a lot less capital than stock market trading. Trading in Contracts for Difference CFD is a popular way to trade both forex and stocks since the emergence of the internet in CFD trading differs from trading currency pairs or trading shares as you never actually own the asset that you trade. One of the biggest advantages and risk factors with CFD trading is the use of leverage. Leverage allows traders of forex or stocks to open large positions with less capital than required.
Trading forex CFDs have many advantages also. You can avoid fees that forex brokers charge along with issues associated with currency ownership such as differing exchange rates, unique legislative frameworks, and even different tax treatments. There is always a high risk of losing when trading CFDs.
The use of leverage with both forex and stocks when trading CFDs is always a riskier endeavour than asset ownership and the lower cost to access the markets runs the risk of overtrading. Unfortunately, the obvious answer is that there is no clear conclusion of which instrument is more profitable than the other. When it comes to choosing what to trade, one should consider more important factors such as personality type, capital, level of risk, and overall financial goals.
With that being said, if your trading goal is to make frequent but small profits using short-term strategies, then forex will typically be more profitable than trading the stock market. This is because the high volatility of the forex market can result in easier profits to a well-trained forex trader who is happy to trade on not just one economy. Forex tends to be less volatile , and less manipulated by high-frequency trading algorithms. Due to the lower cost of frequent trading and higher leverage, if you are going to be day-trading, it is probably easier to day trade Forex than stocks.
Trade popular stocks with a leading hi-tech platform! Adam Lemon. Adam trades Forex, stocks and other instruments in his own account. He has previously worked within financial markets over a year period, including 6 years with Merrill Lynch. Learn more from Adam in his free lessons at FX Academy. Sign Up Enter your email. Did you like what you read?
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Usually, short-term traders with limited funds and higher risk appetite prefer forex trading. But for those who are new to trading and are looking for more stable returns over a higher duration of time. Broadly speaking, the equities markets—blue chip stocks and index funds—suit a buy-and-hold investor, while active traders often prefer the fast-moving forex. The largest difference between forex and the stock market is, of course, what you are trading. Forex, or foreign exchange, is a marketplace.