The stock and forex market are two of the most profitable markets. They both have a high trade frequency and are very volatile. Professionals and of course new traders usually think about where should they invest.
This article will discuss both markets, their advantages, disadvantages, and characteristics.
Basics
Forex is a decentralized market with high liquidity wherein you can directly trade one currency against another currency. The major players are banks, commercial companies, and hedge funds. The market is made up of traders and investors from all over the world. Forex trading is open 24 hours a day, 5 days a week, and can be exchanged over the counter all over the world.
Stocks are shares of companies that are publicly listed that are traded on the stock exchange. The stock exchange is a marketplace where buying and selling of stocks happen. It provides a transparent and regulated platform to traders.
Liquidity
The forex market has a daily trading volume of $6.6 trillion and the worldwide forex market worldwide is worth $2.4 quadrillion. Having a high volume of trading is beneficial to traders. This basically means that investors can easily execute at their preferred price. In addition, this gives investors a high chance of entering and exiting the market because of its liquidity.
The frequency of the stock market is divided among several companies that are being traded. The stocks of each company have different trading volumes. Some have high volume and there are also some companies wherein the trading volume is very low. Compares to forex, the stock market has lower liquidity.
Market Hours
The forex market is not a traditional exchange and is an over-the-counter market. Most transactions are done via the interbank market and trading takes place all over the world based on their business and trading hours. One of the advantages of the forex market is that a trader can access the market 24 hours a day without having trading gaps.
In contrast, the stock market has limited trading hours. Buying and selling of stocks are traded strictly during business hours. Having limited hours of trading limits the options of investors.
Commission
The majority of brokers in the forex market don’t charge commissions. They earn from the spread which is the difference between the buy and sell price. In stock trading, the broker requires investors to pay a commission.
Focus
There are 8 major currencies in the forex market, which can be tracked and monitored while the stock market has millions of companies listed publicly. While it can also be monitored, it is very difficult to track thousands of companies.
Market Influencers
Forex trading is affected by macroeconomic factors of a country like inflation, GDP, and political events. It is important to keep up with current news that might affect the price of currencies.
The prices of stocks are mostly driven by internal company factors which include earnings, cash flows, and debts. Also, news about a company may also affect the price of their stocks.
Conclusion
If you are the type of investor who prefers to rake in profit quickly, forex is the ideal market for you since it is very volatile and has high liquidity. However, you must keep in mind that high volatility also means higher risks. In contrast, if you prefer long-term investments, then the stock market is for you. An investor can have great profits from both these markets. The important thing is learning the tricks and strategies that fit your trading goals.
