Compare Forex Trading and Stock Trading

The forex (foreign currency exchange) market is that the largest and most liquid financial market within the world. The forex market unlike stock markets is an OTC market with no central exchange and financial institution where orders are matched.

Traditionally forex trading has not been fashionable retail traders/investors (traders takes shorter term positions than investors) because forex market was only opened to Hedge Funds and wasn’t accessible to retail traders like us. Only in recent years that forex trading is opened to retail traders. Comparatively stock trading has been around for for much longer for retail investors. Recent advancement in computer and trading technologies has enabled low commission and straightforward access to retail traders to trade stock or foreign currency exchange from almost anywhere within the world with internet access. quick access and low commission has tremendously increased the chances of winning for retail traders, both in stocks and forex. Which of the 2 may be a better option for a trader? The comparisons of retail stock trading and retail forex trading are as follows;

Nature of the Instrument
The nature of the things being bought and sold between forex trading and stocks trading are different. In stocks trading, a trader is buying or selling a share during a specific company during a country. There are many various stock markets within the world. Many factors determine the increase or fall of a stock price. ask my article in under stock section to seek out more information about the factors that affect stock prices. Forex trading involves buying or selling of currency pairs. during a transaction, a trader buys a currency from one country, and sells the currency from another country. Therefore the term “exchange”. The trader is hoping that the worth of the currency that he buys will rise with reference to the worth of the currency that he sells. In essence, a forex trader is depending on the economic prospect (or a minimum of her monetary policy) of 1 country against another country.

Market Size & Liquidity
Forex market is that the largest market within the world. With daily transactions of over US$4 trillion, it dwarfs the stock markets. While there are thousands of various stocks within the stock markets, there are only a couple of currency pairs within the forex market. Therefore, forex trading is a smaller amount susceptible to price manipulation by big players than stock trading. Huge market volume also means the currency pairs enjoy greater liquidity than stocks. A forex trader can enter and exit the market easily. Stocks comparatively is a smaller amount liquid, a trader may find problem exiting the market especially during major bad news. this is often worse especially for small-cap stocks. Also thanks to its huge liquidity of forex market, forex traders can enjoy better price spread as compared to stock traders.
Trading Hours & Its Disadvantage to Retail Stock Traders
Forex market opens 24-hour while US stock exchange opens daily from 930am EST to 4pm EST. this suggests that Forex traders can prefer to trade any hours while stock traders are limited to 930am EST to 4pm EST. One significant disadvantage of retail stock traders is that the stock markets are only opened to plug makers during pre-market hours (8:30am – 9:20am EST) and post-market hours (4:30pm – 6:30pm EST). And it’s during these pre-market and post-markets hours that the majority companies release the earnings results that might have great impact on the stock prices. this suggests that the retails traders (many of us) could only watch the worth rise or drop during these hours. Besides, stop-loss order wouldn’t be honored during this times. The forex traders don’t suffer this significant disadvantage. Also, a trader may supplement his/her trading with forex trading outside the stock trading hours.

Affordability
In order to trade stocks, a trader must have quite significant amount of capital in his account, a minimum of a couple of tens of thousands generally . However, a forex trader can start trading with an account of only a couple of hundreds dollars. this is often because forex trading allows for higher leverage. A forex trader could obtain larger transaction compared to stock exchange . Some forex brokers offers 100:1, 200:1 or 400:1. A leverage of 100:1 means a US$1k in account could obtain a 100 times transaction value at US$100k. there’s no interest charge for the leveraged money. Stock trading generally allows for less than 2 times leverage in margin trading. There are interest charges related to margin trading.
Data Transparency & Analysis Overload
There are thousands of various stocks in several industries. trader must research many stocks and picks the simplest few to trade. There are many factors that affect the stock prices. There are far more factors which will affects stock price than foreign currency exchange rates. The forex traders therefore can specialise in few currency pairs to trade. On top of that, most data or news affecting currency rate of exchange are announced officially, scheduled and during a transparent manner. Retail forex traders therefore have better chances of success than retail stock traders.
Bear/Bull stock exchange Conditions
Forex traders can trade both way buying or selling currency pairs with none restrictions. However, stock traders have more constraints to trade and profit in market condition. There are more restrictions and costs related to stock short sale . during a market when the economy is doing well, stock traders have a high chance of profitability if they buy stock first then sell it later. Savvy forex traders however, could operate altogether market conditions.

Trending Nature of Currency
Major currencies are influenced by national financial policies and macro trends This national financial policies and macro trends tend to last long during a certain direction, either in monetary expansionary (rate cutting) or monetary contractionary cycle (rate hiking cycle). Stock prices however tend to fluctuate up and down thanks to many factors, many of those factors are micro and specific to the stocks. Therefore forex traders can better exploit the trends in foreign currency markets that stock traders available markets.

Regulation
Generally, most major stock markets are better regulated than forex markets. Therefore, traders got to remember of this difference to stock markets. Fortunately, there are however many reputable forex brokers within the market. With prudence and proper research, it’s not difficult to seek out an appropriate reliable forex brokers.
Based on the above few points, forex trading seems to be a far better trading option than stock trading, especially during these uncertainties within the global economy. During market condition, stock trading might be a viable alternative. A trader should definitely seriously consider supplementing their trading with forex trading. Forex trading enables a trader to take advantage of any opportunity arises during non stock trading hours, by trading in forex trading. Forex trading would also enable the stock traders to know a more complete big picture of world economies operations and further enhance their stock trading skills.

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