In the world of trading, the forex and the stock market are two of the most popular financial markets due to potential volatility and high trading volumes. Forex and trading stocks are popular with different traders, which is why what you select to trade depends on various factors, such as your trading style, your trading goals, and your experience level with trading.
Read on to learn more about how forex trading differs from stock trading so you can make an informed decision about your trading style and trading market.
A General Overview of Forex vs. Stock Trading
Forex trading is essentially about the foreign exchange market, which is a liquid financial market with an apparently infinite amount of exotic, minor, and major currency pairs to trade. If this sounds interesting to you, you might want to check out what is forex trading, understand the details of the forex market and trading style. Eric’s traders keep monitoring the potential price movements to determine the movement of currency pairs.
On the other hand, stock markets have traders who speculate on the value of gigantic global shares, such as blue chip stocks that are heavyweight but also penny stocks that have lower value. Many American tech giants, such as Microsoft and Amazon, have their shares in the stock markets.
Breakdown of Main Differences between Forex and Stock Trading
Now that you have a basic overview of stock trading versus forex trading, let’s break down the main differences between both trades.
Potential Trading Hours
Starting with the potential trading hours of forex and stocks, you should know that the trading hours in the forex market are 24 hours a day, but for five days a week, due to the potential overlaps between the world’s time zones. Essentially, the forex trading market opens on Sunday evenings until Friday evening.
On the contrary, if you want to stock trades, then depending on your region and potential exchange, there is a pre-established daily timetable for the basic trading sessions.
Potential Trading Volume
Typically, established traders prefer forex trading due to the volume of assets that they have available to trade with. If you want to know the numbers, you should know that the daily volume is approximately $5 billion for forex trading. Forex offers traders to spread bets and also trade CFDs on more than three hundred potential currency pairs that include minor, major, and exotic pairs. Typically, forex traders lean towards major currency pairs such as the euro and the U.S. dollar.
Compared to the stock counterpart, the forex market has definitely greater trading volume. However, stocks are traded on some of the biggest indices of the world and across a huge variety of industry sectors. Trading stocks include ETFs, which are investment funds that comprise a group of underlying assets. Trading EFT is more diverse and includes fewer risks compared to other stock trades.
Market Liquidity and Volatility
When it comes to choosing between the forex trade and the stock trade, market volatility and liquidity are important aspects to consider. Market volatility and subsequent price fluctuations can help potential traders gain profit if they know how to execute their trades effectively. Similarly, market volatility can also cause traders to lose their investments if they are not successful with their trading strategies.
If you opt for forex trading, you must be prepared for high liquidity, which means that you can purchase and sell assets quickly without really affecting the price. In forex trading, market volatility is beneficial for short-term traders. When it comes to the stock market, most traders prefer the buy-and-hold method, especially in a volatile market. Compared to forex trading, stock traders hope to generate profit over a longer time frame.
