Traders might wonder which market among the forex and stocks market is good for them. Forex vs stocks market both are the two most admired markets among all the financial markets across the globe.
These two markets are highly volatile and liquid. Traders can make huge profits by trading in these. There is much difference also in both the markets as they are way opposite of each other.
What Is Forex Trading?
Forex trading means exchanging currencies with each other. This exchange is done in currency pairs formed by the foreign exchange market. The market works over-the-counter and has no physical existence in the whole world.
It is open 24 hours a day and is the largest among all the financial markets. This market has a large number of participants. It makes the market highly liquid, and traders take advantage of the market’s volatility to earn profits.
What Is Stock Trading?
The secondary term used for the stock is share, which represents traders share in a publicly-traded company. Stocks of a company are bought and sold to earn profits, whether in dividends or capital gains.
Stocks are highly profitable as well as highly liquid. This is the reason why this market is considered one of the most popular financial markets. Traders enjoy short and long term profits by trading with the shares of a company.
Key Differences Between Forex vs Stocks Trading
After understanding the meaning of both the markets, let’s move on to the differences between the markets. Although both the markets are most popular, still there are many points of differences between them.
The areas of difference between both the markets are as follows:
Trading Hours of Market
The hour available for trading makes a huge difference between the forex and stock market. The foreign exchange market is open 24 hours a day and five days a week. Therefore, forex traders have an advantage over stock traders of higher market hours.
The stock market is open for a limited duration of time, and traders only have to generate forex trading much more flexible than stock trading.
Volatility of Instruments
Volatility is the most important power or factor of the forex market. Traders can enjoy the power of volatility by studying different pricing factors of the market. This means short term traders can generate high returns from the forex market.
On the other hand, stock trading is less volatile than forex trading. Although short term traders can also earn profits by stock trading, they are comparatively less. Forex vs stocks trading differs due to the volatility of both markets.
Liquidity of the Market
The forex market is the most liquid market in the world. This means the buying and selling transactions can be executed quickly within fractions of a second. Professional traders of the market also use trading bots to book quick trades and higher profits.
Whereas publicly traded, the stock market is not so quick as compared to the forex market. Traders usually have to hold the stock for a few hours to a few days to book profits. Some stocks are liquid while some stocks are not, which means less liquid than the forex market.
Trading Strategies
Another major point of difference between both markets is the trading strategies. Forex traders generally prefer day trading because their focus is on short term profits and money-making. Scalping and swing trading are also preferable by those traders.
Day trading strategy can also be used in stock trading, but due to less volatility, other strategies are used. To book profits from the stock market, traders have to hold their positions for a longer term as compared to the forex market.
Volume of Assets
Forex trading includes currency pairs such as major, minor and exotic currency pairs. More than 300 currency pairs are available across the world for trading. On the other hand, stocks are way more than this number of assets.
The volume of trading assets in the stock market is endless. It is more stable also as compared to the forex market. The turnover of the forex market is higher, but the assets are more in the stock market. Therefore more options for investments.
Leverage and Margin
Online brokers provide high leverage for forex trading compared to stock trading. This means lower investment. Traders can trade using higher funds in the market. Similarly, the margin requirements are also lower with high leverage.
Traders can maximise their profits with the use of high leverage and low margins. Both stock trading and forex trading have the opportunity to amplify profits. Professional traders gain higher returns from the use of high leverage.
Use A Top Broker
ABInvesting is a regulated broker by the Mauritius Financial Services Commission Authority (FSC). It offers maximum leverage of 1:500 along with 350+ trading instruments. Use various types of educational material and analytical tools to increase your profits on trades.
The Bottom Line
Forex vs stocks, both the markets are highly profitable for traders. They can choose the best broker to trade in the financial markets. Use the finest strategies to trade so that profits can be maximised. Choose from the two markets that suits are best according to your requirements.