Traders have preferences when it comes to the financial markets they invest in. Some trade in the stock market and others in the forex market. Traders must understand the differences and similarities of these financial markets before investing. This will help them in making better decisions that will suit their needs. This article aims to show the differences between the two financial markets and why one may be better than the other.
Forex Market
With over $5 trillion worth of transactions done daily, the forex market is the largest financial market in the world. This is where currencies are traded with the aim of making profits from the fluctuation of currencies’ value.
Stock Market
The stock market is where shares are traded between the owners and the potential buyers. A stock/share is a representation of ownership of a portion of a company depending on shares held. For example, you own 200,000 shares of a company whose total number of shares is 4,000,000. Then it means you have a 5% ownership stake in the company.
Differences Between the Forex and Stock Market
- Liquidity
The forex market is more liquid than the stock market. This is because of the high volume of daily transactions and the millions of forex investors who trade daily. Traders in the forex market can automatically enter and exit their trading positions, set up stop losses and take profit levels with ease.
- Market Access
The forex market is a 24 hour market open from Sunday to Friday. Traders can be able to trade in the trading sessions of their choosing. Examples of the trading sessions are Sydney, Tokyo, London, and New York. The stock market, on the other hand, is limited to only a few hours per day for trading.
- Volume
The forex market has a daily transaction of $5 trillion. This is far bigger than the daily transactions of the stock market. This is advantageous as it results in high liquidity in the market.
- Third Parties
Since the stock market is centralized, with third parties coming between the buyers and sellers. This leads to the traders incurring extra costs. The forex market, on the other hand, has different currency dealers who offer competitive quotes. This results in the traders getting better and cheaper deals.
- Control of the Market
The forex market is the largest financial market with many participants. This ensures that no individual or organization has control of the market price. In the stock market, share prices may be manipulated to suit company objectives.
Final Thoughts
From the differences discussed above, trading forex has more advantages than trading stocks. However, this does not mean that success can only be found in the forex market. There are successful stock and forex traders in this world. What matters is where you prefer to invest.
Ready to learn more about trading? Check out our education section for more articles about how to trade forex and how to trade stocks.
