We live in a financial world of low interest provided by the banks on our deposited money. Thus leaving your money in the bank does no good. With the increase in the demand for more money creation, people are getting attracted to the various platforms and markets for investing money. They are finding various well-established and stable financial markets for investing. Hence the two most common choices which come in front of traders are forex trading and stock trading.
If you are new to financial market trading, then this question might have stuck in your mind that between forex trading and stock trading, which is better? Forex trading and stock trading are similar in the way that both depend on extracting the advantage of regularly changing prices. It is the only similarity between the two. Apart from this, there are many disadvantages. A deep analysis of these drawbacks can help you to choose the best trading market which suits you best.
The article on stock vs forex, which is better? Allows you to compare both these trading markets. It draws a clear difference by bringing out points: trading time, liquidity, margin, leverage, the focus of each market, trading options, and several more. Read the full article to understand forex trading and stock trading in a better and new way.
Forex trading and Stock trading: An overview
There is no definite answer to this question forex vs stock, which is better. The expectations and situations of every trader are different. Whether we are talking about forex trading and stock trading for beginners or we are focusing on the experienced trader, we require a clear comparison. It largely depends on investors how important the particular feature is for him. We will start the article by bringing out an overview of both forex trading and stock trading. After this, we will move towards the comparison between the two and then the conclusion.
Forex Trading
- The foreign exchange market is the largest volume market where there is a strong network of traders. It is a decentralized market. The large players in the foreign exchange market include central banks, commercial companies, hedge funds, and investment banks.
Stock Trading
- The stock market or equity market is a common name provided to the combined group of sellers and buyers of stocks or shares. The word shares reflect the ownership of an individual in a particular company. Generally, these transactions are carried on the stock market exchanges. For raising the capital, many firms allow the traders to take a certain part of ownership in their company.
- Stock exchanges provide a convenient, transparent, and regulated financial marketplace for purchasers to carry business or trade with sellers. Historically, the trade on these exchanges was carried out manually, but with the advancement in technology, the entire system shifted toward digital trade.
Difference between Forex Trading and stock trading
1. Size of the market
The popularity of the stock market is high, but its size is less in comparison to that of the forex market. The currency trading market is one of the largest financial markets across the globe, with a total volume of about 5 trillion. When we compare stock vs forex market in terms of volume forex, of course, it takes the round. You might be wondering why does the size of the market matter? The answer is simple: the greater the size of the market, the larger will be its liquidity, hence easy for buyers to find suitable sellers and vice versa.
Though traders may trade stocks globally, the financial market for stocks is preferable nationally. The forex market, in contrast to the stock market, operates globally. The other point to be considered is there are thousands of shares that a trader can choose from a single stock exchange. In contrast, in the forex trading market, the whole trading largely revolves around the 18 most traded currency pairs which have exceptionally high liquidity.
2. Scope of investor’s focus: Wide vs Narrow
The primary difference when it comes to stock vs forex is the focus area of traders. When a trader looks into individual stock, he mainly focuses on a narrow range of variables. While a trader is more likely to take a record of wider trends, components directly influencing the firm in question will be more vital, along with forces of the market within its particular sector. Comparatively narrow factors will be of main importance such as the:
1) Company’s earnings guidance
2) Debt level of the company
3) Cash flow of the company
With forex trading, this focus becomes wider. A currency indicates the aggregate performance of the country’s economy, which the currency belongs to. Hence the foreign exchange investors pay more attention to macroeconomics. It is the point where the technical analysis of stock vs forex differs. In the forex market, the main focus lies on the general indication, which includes:
1) Inflation
2) Unemployment
3) Gross Domestic Product (GDP) of country
These factors will take priority over the net performance of other private sectors. When one trades foreign exchange pairs, it is trading on two currencies of two different countries. Here it will always be selling one currency while buying the other currency present in the pair. Hence the fundamental investor does not look into one economy but also pays equal focus on the other one. Of course, it may give priority to technical strategies instead of considering the fundamentals.
3. Trading time
The foreign exchange market does not have a single central location and opens 24 hours a day. Hence the participants are scattered across the world, and a part of the market is always in business hours.
In contrast to this, the stock investors must adhere to the stock exchange trading hours to trade a listed stock. However, there are some exchanges that have introduced some liberty or extension in the trading hours. A stock market trader can also participate during after-market trading and pre-market trading periods. There were times when only institutional traders participated in the market, but with the advancement of electronic trading, the market became more accessible for retail traders.
Thus when we look at the trading time forex trading is a clear winner operation 24 hours a day (five days a week)
4. Leverage or Margin
The biggest advantage which makes forex trading better over stock trading is the excellent leverage or margin offered by the brokers in the foreign exchange market. With leverage, an investor can harvest a massive profit by just spending a small amount. Though, while returns can be much more significant, losses can also be larger. Hence there is a large risk associated with the forex in comparison to stocks.
Leverage is an essential factor to be taken into account while selecting the best forex broker. One such financial service provider offering excellent leverage is Primefin. It is a famous brokerage firm regulated by the Australian Securities and Investments Commission or ASIC and the Financial Market Authority (FMA). The broker provides trading on more than 350 asset classes including forex, stock, indices, commodity and cryptocurrency.
Trading features of PrimeFin include:
- High leverage (up to 1:400)
- Trading fee: $250
- Trading platform: MetaTrader 4
- Spread: 0.1
- Execution speed: 0.05 sec
- Trading on top stocks: Apple, Netflix, Adobe, and several more
- Trading on top currency pairs: GBPUSD, EURJPY, NZDUSD, and several more
5. Volatility
When considering stock vs forex the stock trading is relatively more volatile. The reason for this is that currencies are comparatively more stable as far as price is concerned when the economic conditions of the country are steady. However, it does not always happen, and the forex market has a reputation for intervals of extreme volatility. This volatility may or may not collide with the internals of extreme volatility in stock exchange markets.
6. Price influencers and catalysts
The kind of news influencing forex trading and stock trading is somewhat different from each other. Prices of the forex are usually moved by the global news, on the other hand, the prices of the stock are generally affected by the news corroding to the underlying stock of a company or its respective sector. Both stock and forex prices may react to the news on the large-scale shifts in economic situations within the boundaries of the country.
They may also respond to the political news which investors think will have a major impact on the country’s economy in the coming future.
PrimeFin provides regular updates on the market events through the notification of a trading application. They provide many research tools including an economic calendar, earnings sessions calendar, trading signal, trading example, and of course, the latest news as mentioned above.
Which is better between Forex Trading and Stock trading?
Which is better between forex trading and stock trading depends on the trading style, your ultimate trading goals, your level of risk tolerance. Forex market trading involves far less regulation and far more value of leverage compared to stock market trading. It makes it highly attractive and extremely risky too.
On the other hand, when we look into the stock market, there is a wide range of choices among the thousands of potential stocks. At the same time, there are 18 common currency pairs which traders usually trade in the forex market.
One of the major drawbacks to forex market trading compared to that of stock market trading is that it remains open for 24 hours a day. It means that the trader will have to monitor the market on odd hours because the market keeps fluctuating even when you are not working.
Ultimately you need to figure out and compare all the points regarding forex and stock before selecting the one which suits you best. If you are among them who prefers high leverage and are ready to take the risk, go with forex. In case you think that a larger option leads to a better choice and the lesser the market trading hours lesser is the risk then you can go with the stock market.
The Bottom Line
So which should you go with stock trading or forex. Check your potential along with your interest. You can perform better if you have immense knowledge and interest in a particular market. No market can generate profit without your interest and efforts. PrimeFin is a platform offering a trade of both forex and stock. Visit the website of the broker for more information. Hope you will make the right decision after reading the above differences between forex trading and stock trading.
