Compare Forex and Stock Market Differences
Forex leverage is one of the biggest reasons why some Forex market traders prefer Forex over the stock market. Here’s how to compare the difference between Forex trading and stock trading.
In stock trading, you can trade at a maximum of 1:2 leverage, which requires special conditions before using it. All investors can not use the margin account used to leverage their stock trading.
Forex trading is very different. Only by opening a Forex trading account in let’s say one of the best forex brokers around and without any other requirements, you will qualify for a high leveraged trading account. On Forex, you can use a leverage of up to 1:1000 or even more.
In buying and selling stocks, you actually buy corporate stocks from several hundred dollars. Market prices vary with supply and demand. Trading in the Forex world is different. Although the currency supply of a country fluctuates, there is always a large amount of currency for trading. As a result, all major currencies in the world have a very high liquidity.
In currency trading, currencies are quoted in pairs; therefore, you should consider the health of the economy of both countries – the country in which the currency is traded and the country you are trading against.
The important issues of each market are different from other markets. When you buy Intel’s stock, your main concern is whether it will add value to the stock. On the other hand, when trading (trading and selling) Forex you are less concerned about the stock prices of other companies and should pay attention to the economy of the two countries concerned.
Does a country have job growth, higher GDP or better political outlook than another? Therefore, a successful Forex trading business requires a two-way analysis of financial institutions. Forex markets are sometimes more sensitive to the economic and political situation in other countries. The US stock market is not immune to this, but is usually less affected by such external issues.
Price sensitivity in business activities
Price sensitivity is very different in the business activities of these two markets. Buying 10,000 shares may affect stock prices, especially for smaller companies with fewer stocks than large companies like Apple.
In comparison, even a few hundred million dollars in a major Forex currency trading is likely to be either ineffective or have little effect on the price of the currency on the market.
Accessibility in the foreign exchange market is much higher than the stock market, although in the 21st century it can be bought 24 hours a day and 5 days a week, but this is not an easy task. Most retail investors through a broker during a major daily trading period from 9:30 to 16:00 or a much smaller trading market (outside of the normal market hours), where fluctuations in prices are projected Trades – which discourages many small investors from doing so.
On the contrary, Forex trading can always be traded at a given time zone, due to huge exchanges around the world at 6 days a week and 24 hours a day.
Lack of Bear Market on Forex
When a stock market is down, you can profit from selling (borrowed shares), but this will have risks; for example, you might face (with hypothetical) unlimited losses. But in reality, it’s unlikely that this will happen because your broker closes your position from one point to the next. However, most financial advisers recommend selling (stock) loans only to experienced investors, many of which try to reduce risk by running a Stop Loss and parallel margin currencies.
In Forex trading, you can simply sell a pair of dollars with the same risk and without the need for additional precautionary trades (to limit losses), or buy (Go Long).
More freedom from regulation
Buying and selling stock in major exchanges is subject to many regulations and restrictions, while these rules apply less on Forex. In some ways, the regulatory environment of major stock exchanges may have limits that you do not want, but unlike Forex, it protects you and other investors in the least.
The choice yours to make
Most investors are more familiar with Forex than the stock market. This familiarity is likely to bring them comfort. In Forex, due to the relative freedom of regulation and the possibility of using a very high leverage, it is easy to control large trades without any special circumstances and limited funds. This is both a positive and a negative aspect of the Forex market, as participation in Forex increases the investment opportunities and risks to a certain extent.