In this article, we discuss Forex vs stocks. Where forex and the stock market are most at variance is naturally with regard to what you are trading. Forex refers to the marketplace where currencies are bought and sold. Conversely, the stock market refers to share dealings. In the main, your determination regarding the trading of currencies/stocks ought to be on the basis of the asset that intrigues you the most. But if only life were that simple! There are, as always, several factors contending for your attention – trading forex vs stocks will depend on these.
Forex vs stocks: Trading hours at the market
Market opening hours may have a significant bearing on your forex trading vs stock trading conundrum. Moreover, these may affect the time you will be spending monitoring market movements.
Given that forex is a thoroughly global market, you can naturally trade any hour of day or night, five days each week. Then you have a lot of trading opportunities. But, also, there’s the attending risk that there might be times when you won’t be monitoring the market when crucial movements tackle place, away from your attentive gaze.
If you fixate yourself on trading, a risk management strategy is imperative, armed with just the right stops/limits that shield your trades from inessential losses.
The most opportune time to trade forex is when two sessions follow each other in succession. That’s when there are masses of buyers and sellers. For instance, were you to docs on GBP/USD, the relevant hours would be 12 pm -4 pm, London – New York. The accelerated liquidity will speed up transactions, even precipitating spreads’ cost reduction.
Share trading tends to be a tad bit different. It is restricted by the exchange hours where the shares are listed. Extended hours now are traders’, enabling them to register their observations regarding impactful happenings even when the markets are closed.
Forex vs stocks: What factors influence the markets?
Another consideration tugging at your attention is what drives market price movements – where lies the difference between forex and stocks exactly. Of course, in the main, you have to home in on supply and demand in both markets to come up with a coherent strategy. But of course, there are a lot of other reasons why prices move – true for both stock and forex trading.
Share trading, you will be concentrating on several factors that undoubtedly affect your chosen company. This may well include the whole gamut, counting the company’s debt levels, earnings and cash flows – besides economic data, sector health and news reports.
Market pricing is contingent upon a much more comprehensive range of affective factors, so rest assured forex is a different kettle of fish. However, accounting for the national macroeconomic scene is a given, and you will be juggling data as regards unemployment, GDP, inflation, in addition to political events and news.
Also, since you are buying one currency even as you are selling another, you will need to have a close to expert opinion on two economies.
Forex vs stocks: Liquidity
Liquidity is the level of comfort at which an asset can be sold or bought on the market. Trader volume is directly proportional to cash flow. Here, it’s easiest to find the other side of the dealing.
A case can easily be made for forex being the de facto leading financial market internationally. Trillions of dollars course through the market’s robust vein every day.
While it is true that market liquidity can pulsate and fluctuate throughout the course of the day, the FX pair that’s your focus at the moment can have particular factors affecting its features and attributes. Truth to tell, no more than eight FX pairs hog the limelight. These account for close to 75% of all forex trades per a 2016 Bank of International Settlements study.
The number of trades daily coursing through the stock market each business day is a lot less, relatively speaking. However, trades remain still the easiest to access and trade. The bevy of willing buyers and sellers surrounding blue-chip shares make them really liquid. a movement contrary to blue-chip direction implies a lot less liquidity.
Forex vs stocks: Volatility
Volatility calibrates the extent to which a price will undergo unforeseen price fluctuations. A high volatility market will exp[erience rapid price change. Conversely, low volatility markets will have relatively steadier price changes.
Forex liquidity, in fact, makes it go volatile. The masses of trades make for frequent price fluctuations. News events and political announcements easily sway these factors.
Stock market price patterns generally are a lot more stable. Domestic politics, however, does tend to affect the stock market more than we would like to admit.
Volatility, liquidity, profitability – all may be in the same equation set. However, these have to be tempered by a generously developed risk management strategy. Poorly thought out risk management can wipe out all glorious earnings, stocks and forex investment thus endangered.
Forex vs Stocks – which is more profitable? We could also have discussed leveraged trading at length. This is an attribute of forex trading, lending it its profitable character. Therefore, the FX market does appear to be as risky as it is dizzyingly profitable. Your own financial goals and trading style shall determine if you go for stocks or CFD trading at the FX market. Stock markets will give you fewer jump scares. But both are definitely worthy in their own right.