Forex vs. stock trading

stock tradingThis is one of the most discussed subjects in the trading community. However, there is no fast or a hard answer to the question of forex vs. stock trading. Both markets have got their advantages and disadvantages.

Choosing one over the other is highly dependent on one’s personality. Both options have the potential to make a decent return, but before making that important decision, let’s explore the key features that differentiate these two options.

Firstly, the forex market is decentralized; the market is not controlled or regulated by any single institution or nation. The forex market is composed of a global network of banks and financial institutions such as hedge funds. The stock market, on the other hand, is composed of sellers and buyers of stakes in various companies. In a bid to raise capital, companies will often float their shares to the public. The whole process of buying and selling of these shares is highly centralized. In most cases, these transactions are conducted via exchanges. Exchanges are transparent and highly regulated by the various regulators around the globe.

The market size

Stock trading is more popular than forex and CFD trading. However, in terms of size, the forex market is bigger. For example, you would need about 150 NYSE to make up the forex market. So why does the market size matter? The greater the size of a market the more volatile it is. And the more volatile a market is, the more the trading opportunities. Another benefit of participating in a huge market is that it becomes increasingly harder to manipulate large markets such as the forex markets. Instances of “pump and dump” often associated with the stocks and crypto market can never be practiced in the forex market.

Trading times

With participants spread across the globe, the forex market is open on a 24-hour basis. Every single time, there is a part of the market that is still open for business. When the London session closes, the New York session is active, and when the New York session closes, the Tokyo session is active. Stock markets, on the other hand, must adhere to the hours of the exchange. When the stock closes down, then no shares can be traded until the next trading day.

Leverage and margin

One thing that truly set the forex market above the stock market is the leverage and margin offered in the FX market. For those who trade shares physically, most likely you are not enjoying margin. For the traders trading shares as CFD’s the leverage is quite low, about 1:10. With the Forex market, traders will enjoy leverages of up to 1000:1. That means, with an account of 500, you can trade in the same capacity as an individual with an account of 500,000.

Commissions

In most cases, forex brokers do not charge commissions or monthly charges. The Forex brokers, in this case, are compensated in the form of spreads. Spreads are simply the difference between the bid and ask price. On the flip side, transaction costs associated with stock trading are quite high.

Middlemen

Like any other centralized system, the stock market is often associated with mediators or middlemen. Forex, on the other hand, is decentralized allowing a trader to interact with the market directly. Buyers and sellers interact with each other without the need for intermediaries.

So what is the way to go in 2019?

Bottom line, like in any other form of investment, it is best to go with what works for you. If you are more conversant with stock trading and focus on individual companies, then stick to that. If you are more into macroeconomics and events shaping the globe, then forex is your thing. You should also focus on the features discussed in this article but always bear in mind that all these forms of investment are risky and should be approached with care.