Deciding on which assets to trade on the financial markets is purely a personal decision; but there are some factors you need to consider before doings so. Forex vs stocks provide a wide range of assets to trade. Basically forex trading involves the eight major currencies whereas stock trading involves shares of listed companies.
In forex you buy and sell currencies paired against each other and in stocks, you buy shares of companies. Buying shares ideally mean that you own part of the company and the value of the shares bought would have a direct effect on your money invested.
Forex vs stocks trading hours.
The forex market is a decentralized one and it is traded 24/5 (24 hours a day, 5 days a week). Excluding the weekends, the forex market is available from 4/5pm EST on Sundays to 4/5pm EST on Fridays.
With the stock market, the opening and closing time is dependent on the exchange a particular share is listed on. For instance if you wanted to trade a stock listed on the New York Stock Exchange, you would have to do so between the hours of 9am EST to 4pm EST Monday to Friday.
The stock market is highly centralized and it is strictly based on location.
Stock exchanges exist in many countries in the world but United States, Asia and Europe house the major ones. When one exchange is closing, another one is opening. However, the forex market stays open throughout all the three major sessions.
On the topic of forex vs stocks, liquidity is a factor that is worthy of mention. It refers to the availability of buyers and sellers and how easy it is to make transactions between these participants. The more the better, since buyers need sellers and vice versa.
The popularity of forex amongst traders means it is highly liquid and that means buying and selling is easier as compared to stocks. Trillions of dollars are turned over daily on the forex market and this is because of the decentralization.
Although the stock market also is a major financial house, its liquidity cannot be compared be compared to its counterpart above. This is because; it does not have as many market participants in comparison to the forex market. That is not to say it is illiquid though.
Volatility simply refers to the change in price of an asset over a period of time. An asset that changes in price quickly over shorter periods is highly volatile, the opposite is also true. On the matter of forex vs stocks, forex is ahead of stocks in volatility.
Volatility is good and bad, like leverage, it is a double edged-sword. You need the market to move in order to make money, hence volatility being good. On volatility being bad, unexpected fast movements could cause you to lose money quickly if you’re on the wrong side of a trade.
Stocks do have volatile periods as well but generally, they tend to move slower and range tightly than currencies.
Different fundamental analysis techniques.
Supply and demand is the basic theory that influences the movement in the financial markets. Fundamental analysis which also assesses the health of assets before forming a bias affect both stocks and forex. However, they are created differently.
The fundamentals that affect stocks are relatively easier to time than the ones that affect the currency market. With stocks, you measure a said company’s standing by studying its sector health, debt levels, earnings and cash flow. You also need to be on the lookout for news regarding the said company.
Forex fundamentals have to do with the macro-economics of a country, news and political influences. Central Bank interest rate decisions, employment rate, inflation level (CPI), Gross Domestic Product (GDP), Retail sales and a whole lot are some of the macro-economics that affect currencies.
Manipulating the stock market is easier and there have been many instances. Popular of this day is the instance when Reddit users sent GameStop sky-high; just that this time round, it came from the retail end. Because stock exchanges are relatively small and centralized, any group with enough funds can decide to take control of it for a while.
The forex market is just too large and too decentralized to succumb to a similar situation. Banks hedge funds, governments and a whole lot of big players involve themselves in forex. This makes manipulation of the highest order, seemingly impossible.
Worthy to note is that manipulation also exists in the forex market, especially by unscrupulous brokers and big firms but not to a very large extent.
Shorting and longing in forex vs stocks.
Buying and selling goes on with ease in forex is since it is traded in pairs. If you think the value of a currency pair will increase, you simply place a buy order and it you think it will decrease simply make an order to sell. There’s no stress with the position you want to take in forex.
The basic idea with stocks is to buy into the shares of a company and hope it increases in value so that you can make a profit. With this in mind, you could only buy stocks but short selling was a little bit complicated back in the days.
These days you can short stocks of companies that are falling easily due to the advent of Contract for Differences (CFDs).
With taking positions, there are equal opportunities in both forex and stocks currently.
The bottom line on forex vs stocks.
With the points made above, it may seem forex scores advantageous points than stocks. This could be a reason why the former has a lot of participants. However, choosing one over the other is purely dependent on the trader and his intentions.
Also, trading both markets have been made easier with the presence of many brokers. They offer a wide range of competitive options. Forex vs stocks; which one do you trade, and why? Leave me a comment or question in the box below.