When an individual thinks about getting rich using the trading platform, the two prospects that emerge are the stock exchange and forex trading market. The bonus awarding forex best brokers often debate about the differences between trading stocks and forex.
The two financial trading industries are different and have their own different sets of risk levels. There are stock traders who invest in forex and there are forex traders trying their luck in stock marketing. For a new trader, the decision can be quite confusing.
Though there might be differences in the type of trading, the risks involved are the same in both forex and stock exchange. They both can be potentially and emotional daunting for traders.
So, without further ado, let’s start with some basic differences between trading stock and forex market:
- The entry costs
Every trading market requires some cost to enter or initiate the trading. Stocks usually require a much bigger capital as compared to forex. For most of the average forex mentors, forex is usually the easier way as it has fewer entry costs.
The reason why forex needs lesser cost is the fact that it makes use of leverages which is increases the controlling units during the trade. This can be both helpful and harmful to speculators.
As far as the stock market is concerned, profits are usually large as it takes in a large sum of money. Also, losses could be huge and might even wipe out the invested capital in the stock exchange.
- Forex is a simultaneous game
Another major difference between forex and stock, as shown in a forex trading course, is that when you trade in forex, you are simultaneously buying and selling the currency. This means you are literally exchanging currency pairs. This is far different from stocks market trading. In shares, you can either buy or sell at a time.
In forex trading, currency pairs are the instruments of trading. You can speculate the currency rise or fall against another currency after investing in it. However, in stocks, you can buy the shares whenever you think that the share price of the particular stock is going to rise.
- Investing and speculation
Speculating in forex markets is much cheaper as compared to that in stocks. The reason is because of the large liquidity pool that is present in the forex. It is a fact that most of the retail traders are the speculators that hold positions for a few hours or for 24 hours at best.
In the stock exchange, speculation is possible but it comes with heavy costs. Also, you need significant amount of investment to speculate in stock markets. Most investors usually use the stock exchange market as an investment. In contrary to this, forex market gives you quick results with short-termed results of profit or loss.
- Forex has a lower spread
Spreads are regarded as the difference between the asking price and the bid. This value is smaller in the forex as compared to stocks. Though some large-cap stocks have tight spreads; such is not the case with most other stocks available for trade.
In the forex market, the major currencies usually come with tight spreads. This is due to the volumes that these forex currency exchange pairs have. For long term, the spreads are cheaper as compared to the stock exchange.
- The difference in the trading place
As most of us are aware of, stocks are traded at a well-structured building called a stock exchange. NYSE or New York Stock Exchange is one perfect example of a stock exchange. Trading at this place comes with several benefits for traders. They can get access to order-books to keep a record of selling and buying procedures. This is also useful for traders who are always on the lookout for fundamental or technical analysis for trading. Trading at exchange also comes with security benefits. This makes it a safer option.
As far as the forex market is concerned, mobility is a term spread across the entire currency trading world. Trading is done over the counter. There is no centralized building or exchange place for forex markets. The transactions can be done privately between sellers and buyers.
As you can see, both exchange markets have their own pros and cons. What you chose depends on what your risk tolerance is. You should understand your goals and decide on whether you wish to invest or speculate before making the decision of choosing an option between Stock Trading and Forex.