In today’s financial markets, traders and investors have easy accessibility to an ever-increasing number of platforms from which to trade. Everything from dependable and trustworthy stocks to the more volatile but extremely popular forex (foreign exchange) markets are available. However, selecting a market to trade can prove to be a complex task, as there’s a plethora of variables that should be thought through in order to make a wise decision.
Components such as style of trading and risk tolerance should all be factored in and considered. For instance, if you’re an investor who values the buy-and-hold principle, then the stock market may be more appropriate for you. But if you’re a trader focused more on the short-term, then the forex alternative – with its inherent volatility – might be a better fit.
At CWS Capital, we want to arm you with the right information so you can make informed decisions in regard to your investment options. We are a foreign investment company in Edmonton that offers a forex investment fund. And in this article, we’re exploring the difference between forex trading and stock trading – keep reading to learn more.
Forex or Stock Trading: What’s the Difference?
The main differentiator between these two trading alternatives is, simply put, what is being traded. Forex (foreign exchange) is merely a marketplace where the buying and selling of currencies take place. Conversely, stock trading has to do with managing shares, which are essentially pieces of ownership of a company spread across a multitude of shareholders.
Before you make a choice of whether to invest in either, it’s crucial to have some type of guide to help you understand what you’re getting involved in. As such, here are a few additional differences between forex and stock trading to provide you with more clarity:
Trading Hours of the Market
The market’s opening hours have the potential to greatly impact your trading, affecting the time you’ll require to observe and track the markets. With forex being an international market, you have the ability to trade 24/7, Monday through Friday.
This offers an abundance of trading opportunities. However, it also brings the risk of – and leaves you vulnerable to – the market moving when you aren’t present to observe it. As such, if you choose forex trading, it’s essential that you create some kind of risk management plan.
Volatility is simply an assessment of the likelihood that a market’s value will endure considerable, unexpected price oscillations. If a market has high volatility, its prices will rapidly change and fluctuate. Conversely, markets with low volatility will typically retain more gradual and steady price alterations.
Forex can be traded very easily, as a result, this makes it especially volatile. Even though the market will typically trade in the confines of a smaller scope, the overwhelming majority of trades occurring within the forex market can result in changing prices very rapidly.
On the other end of the spectrum, the stock market is typically imbued with more stability. Its patterns of ranging prices and value assessments that you can monitor are more predictable and steadfast.
Liquidity can be described as the ease of buying or selling an asset on the market. This is an important detail to understand because with more traders, comes more money flooding into the market. Consequently, this makes it a much simpler process to find someone who can occupy the opposite side of your positioning.
Additionally, forex is the biggest and most in-demand financial market. For this reason, it’s incredibly liquid and often sees trillions of dollars in daily turnover.
The stock market, however, realizes relatively fewer trades a day. But shares remain quite accessible and easy to trade.
There are many differences that separate forex trading from stock trading. The investment option you choose will be based on factors such as your goals, strategy preferences, and risk tolerance – among other things.
As such, it’s very important to do your own research prior to jumping into any investment opportunity.