Many people often wonder which makes the better investment between the money market and stock market. They are both financial markets; they are volatile and trade huge volumes daily. They are also risky investments to undertake and can be quite profitable at the same time.
The forex market is the largest financial market worldwide. Some currencies trade more volumes than others. In 2019, the US dollar made 88% of all the forex market transactions globally. The stock market lets investors or traders speculate the value of shares. Companies with huge market capitalization and are well established have the most promising shares for speculation.
This article shall look at the differences between the forex and stocks to help you make an informed investment decision.
Here are the Differences Between Forex and Stocks
The trading hours differ widely between the two trades. The forex market trades for 24 hours for five days a week. The forex market has four major time zones that overlap each other to allow trading throughout five days a week.
The stock market, on the other hand, trades depending on a specific exchange and region. Each stock market operates its hours. Sometimes the stock trading hours overlap each other while others close for breaks during the day.
Market Liquidity and Volatility
This is another notable difference between forex and stocks, especially volatility. The price movements in both can lead to either a profit or a loss. Highly volatile markets experience sudden price changes, while the low volatile markets’ prices change gradually. It makes the forex market very volatile as a currency is affected by major news.
For the stock market, its price patterns are more stable and predictable over time. The market gets affected too by major news. The forex market is the largest in the world, which makes it highly liquid. The stock market size is smaller, with fewer trades and turnover per day.
Stock trading requires you to meet specific requirements, and not every shareholder is accepted for trading margin accounts.
The forex trading market has no such criteria. To leverage, you can open an account and start trading. You may be asking, how does forex trade work? Well, it helps if you are knowledgeable or a good forex broker.
The trading margin for forex trading is lower, starting at leverage equal to 20:1. For stock trading, the leverage ratio of 5:1 presents fewer risks. Forex traders who close quickly can make profits even with the high ratio.
From the differences above, it is clear that forex and stock trading are quite different. They vary in almost every aspect. While they are both markets, stock trading involves transacting shares of individual companies. Forex trading transacts currencies. Both markets are speculative and share the same trading idea or concept.
The daily forex trading volume is approximately $6.6 trillion, according to data by Statista. The currencies’ trade volumes differ broadly. The major currency trading pairs are USD/CHF, USD/JPY, EUR/USD, and GBP/USD. The NYSE is the largest stock exchange. The London Stock Exchange, NASDAQ, and Tokyo stock exchanges are also big exchanges.