Stocks vs. Forex

With more and more people discovering the accessibility of the forex markets, a lot of questions are being asked about its differences and similarities with the stock market. It’s far less well known than the stock market, but is now actually much larger, and there are thousands of day traders Which should you get involved with and why?

Opening Times

One of the major differences between the two markets is that, while world stock exchanges have limited daily opening times, forex is a 24 hour market. Trades can be made anytime between Sunday and Friday night, so there’s a lot more opportunity. There are different sessions, but they are essentially seamless.

Long and Short

There are always opportunities in the forex markets, because you’re always buying one currency and selling another. You can profit on both rising and falling markets, which is not something you can generally do with stocks. There are some traders who actively look to capitalise on the misfortune of some currencies.

Liquidity

The forex market is huge. Daily transactions run into the trillions, which means that it is almost impossible for a single entity to have any real effect. Stocks on the other hand, are vulnerable to the power of larger market movers. There’s also the issue of crashes; when a company has a major problem, stocks can drop dramatically, but this is less likely in forex.

Accessibility

Stocks vary greatly in price, but cannot generally be split down into lower amounts. This means that you often need to own a considerable number of stocks to be able to make significant profits. With forex however, you don’t need a large amount of capital. Certain methods of trading, such as spread betting or binary options, are available with little more than pocket change.

Risk

Risk is a difficult method of comparison, because different stocks can have a different degree of volatility, depending on the company and industry. Forex also has both volatile and quiet periods. In general however, most traders would agree that forex carries more risk, because changes are constant.

Leverage

Leverage is something that makes trading inherently more risky. Essentially, it allows a trader to scale up their investment; amplifying both their profits and losses. It’s available to both stock traders and forex investors, but the difference is in the amounts. Generally, leverage of 2:1 is available to those who are buying or selling shares, but many forex brokers offer rates of up to 200:1, and Alpari even offer 500:1, depending on the account you choose.

The choice between stocks and forex is not often one that people make. Usually, they’ll be drawn into one or the other, but the above points are certainly important to consider if you are thinking of getting into the world of financial trading.

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