People often mix trading Forex and stocks with each other. Even though they may share some similarities in the most part, they are totally different. The Forex has unique features that distinguish it from other markets and many people reckon it is the most attractive way to trade.
When you choose where to invest your money, it is essential to understand which trading style is the best for you. Generally, it is way better to invest in Forex trading based on the key differences that enable traders to gain more money. In this article, we will compare two huge markets with each other.
1.Volume: Winner-Forex
One of the crucial differences between Forex and stocks is the volume of the market. While stock market trades around approximately $200 billion per day, Forex is estimated to trade nearly $5 trillion in a day. The most trading is concentrated on EUR/USD, USD/JPY, GBP/USD, AUD/USD. If you were to take all of the stock markets in the world, Forex would notably surpass them.
Having a large trading volume is beneficial to consumers in many ways. With high volume, traders can conduct their orders efficiently and closer to the prices they want, even though most of the markets are inclined to gaps.
2.Liquidity: Winner-Forex
When you are dealing with high volume, you should also anticipate that it provides high liquidity as well. Liquidity causes lower transaction costs and tighter spreads. Forex major pairs which have been mentioned earlier are characterized by extremely low spreads and transaction costs when it comes to comparing to stocks. This should definitely be considered as one of the main advantages of trading Forex. High liquidity is also beneficial to customers.
3.Operational time: Winner-Forex
Forex is actually a platform that operates 24 hours a day. The transactions are not conducted via the traditional exchange, as the interbank market facilitates it. This means that trading can take place from any part of the world in different time zones and business hours, whenever a person desires. Thus the Forex trader can trade virtually for 24 hours 5 days a week. Stock markets mostly operate only 8 hours, and they are affected by different variables. So the duration of operating is also the main reason why one should invest Forex – it is more convenient and depends solely on your choice.
What’s more, you can easily turn to various strategies when you apply for different sessions. Different strategies are essential for different conditions.
4.Commission rate: Winner-forex
Forex brokers do not charge with an extra commission. They make profits via the spread – which is the difference between the buy price and sell price. When you are trading with stocks, you should keep in mind that traders pay an additional commission fee to a broker. Forex spreads are transparent comparing to stocks. It can be used to determine the cost for your position size before execution.
5.Focus: Winner-forex
In Forex, there are eight main currencies you can concentrate, and in stock markets, there are almost thousands of them. When you have a limited choice and only eight economies, you will always look for diverging and converging trends between the currencies. It is far easier to observe only eight currencies than focus on a thousand ones in case of stocks.
You can use an economic calendar as well that will help you find out the variables affecting major currencies.
6.Centralization: Winner-forex
An obvious advantage you can notice while trading Forex is that there is no third person involved between you and the buyer/seller who will control and observe activities. Forex market is a totally decentralized system, which means that quotes vary from different currency dealers.
7.Margin and Leverage: Winner-forex
In favour of Forex trading, the superior leverage it offers is beneficial in many ways. While you are trading stocks, it is more likely you are trading without the benefit of leverage. Forex brokers offer you 1:50 leverage.
Also, while you are operating in forex, the noteworthy advantage is a speed of execution. All transactions are made instantly, while in stock universe it could take a long time. People are fond of swift executions and do not enjoy when they are forced to wait.
Conclusion
Overall we would probably advise you to invest in Forex in the short term and medium term because you can focus on different trends very easily. We also suggest trade Forex in long-term periods as well, though you need a certain amount of experience for efficient operation.
Both ones are complicated, of course, and require a piece of particular knowledge, if you are really determined to earn a lot of money. You will encounter risks and challenges in both of them, so eventually I think it is entirely up to you which one to choose for investing money. In both cases, you will need someone who will assist and mentor you.