Forex vs stocks – what are the main differences?
In an unstable economic situation, many view financial markets as a source of additional, and in some cases, basic income. Before choosing one or another field of activity for yourself, it is worth learning about the differences between one market and another. Let’s talk about this using the example of the stock market and Forex.
Main differences between forex and stocks
There are certain differences between trading in these financial markets, which we will discuss below. But the essence is the same – prices for a particular asset are formed on the basis of supply and demand. However, trading on Forex is based on speculation, while trading on the stock exchange is based on long-term investments.
The main difference between Forex and the stock exchange is that the first one does not have a single centralized trading platform. Whereas the stock exchange is a specific place where transactions with different assets are performed every day – for example, there is NASDAQ and others. But, it’s worth mentioning that forex is an over-the-counter foreign exchange market.
Leverage, a kind of loan that a broker is ready to provide to a trader, is very modest on the stock exchange: 1:2, 1:3, 1:5, 1:10. The standard leverage in Forex is 1:100, and maybe 1:200, 1:500, 1:1000. In some jurisdictions, Forex dealers are not allowed to have a leverage of more than 1:50.
In recent years a lot of jurisdictions have decided to diminish the size of the leverage, which resulted in numerous FX brokers online offering different trading conditions to their customers. Leverage is generally a double-edged sword, so it is always better – especially for beginner investors to start trading with a low amount of leverage.
Stock trading is one of the oldest forms of earning money. In this regard, stock trading is more popular than Forex. Even though the latter is gradually gaining more and more popularity worldwide, stock trading is more reputable.
On the stock market, trading is carried out in shares, bonds, depositary receipts, shares, mortgage securities, etc. If we talk about companies operating in Forex with a license, then the list of instruments they have is limited only to currency pairs. Offshore Forex brokers, on the other hand, offer many other assets.
In short, when it comes to the stock market there are way more possibilities and space for maneuvering than on Forex. As we have already mentioned above the only thing that traders can turn to is currency pairs.
To work on Forex, a simpler and more intuitive platform is used, mainly MetaTrader 5. The Quik exchange terminal is rather difficult to learn. But, by the way, MT5 is a multi-market platform, that is, it allows you to work, including on the exchange. On Forex you will see a bunch of platforms that traders use every day from MetaTrader to cTrader.
When we talk about trading platforms, they are essential to conducting trading, because they offer numerous benefits. First of all, you can easily access charts, use indicators that will simplify the trading process even more. The choice in Forex is broader.
Forex trading is conducted 24 hours a day, 5 days a week by dividing the day into four sessions: Asian, European, American and Pacific. This is not the case in the stock market, which has a more limited period of working. You can trade Forex almost every time, which is a huge plus for the currency market.
Another main difference between Forex and the stock market is that the former is the largest in terms of trading volume: its daily turnover reaches 3-5 trillion dollars. This is 10 times the turnover of the entire world stock market. In the past few years, FX has really shown a massive leap in terms of circulation compared to stocks.
In the Forex market, and in the stock market, in principle, you can start trading with the amount of $100. But in the first case, the advantage is that it is possible to split lots: the minimum position volume is 0.01 lots. Buying a third or half of a share will not work, and commissions will eat up all profits, which makes the stock market much less accessible.
There is no need to choose – Forex or the stock market: work on both in parallel, considering the former as an aid in hedging positions. Eventually, it comes to personal taste and preferences which one a particular trader will select in the long run.