When choosing between forex and stock trading, the most significant difference is the commodity of trade. Forex trading involves the buying and selling of currencies, usually made in pairs. On the other hand, stock trading is the buying and selling of shares for companies listed on the stock exchange. Look at the factors discussed below to help in your decision.
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Influences in the Market
Consider what causes a change in market prices other than the issue of supply and demand. In stock trading, evaluate the company shares you want to trade and especially its financial stability. For forex, put a country’s GDP, inflation, political atmosphere, and news into consideration. It will apply to the pair of countries whose currency you are seeking to trade.
Marketing Hours
The forex market is global, and it operates for 24 hours, five days a week, giving you a lot of opportunities to trade. The risk of these immense trading durations is that many changes can occur without your knowledge as it is impossible to be trading for all this time. Here your trading strategies will come into play to put the necessary limits to protect yourself from losses.
For stock trading, trading depends on the operating hours of the specific exchange where shares are listed.
Market Volatility
When it comes to unpredictable changes in market prices, forex trading is quite volatile. Currency prices fluctuate all the time due to different factors and the number of trades. In January 2020, the Swiss franc and Japanese Yen rose due to the US-Iran tensions. Keeping up to date with world news and events is essential if you decide to trade with forex software.
The stock market is more stable, and easier to keep track of its price changes as they happen.
It does not mean that it is entirely immune to volatility. The events of 2020 affected so many markets globally, as shown in this article by business insider Africa. Market volatility is not all bad. Although the risk is higher, the potential of making huge profits is there as well.
Liquidity
How easily you can be able to convert the security into cash is a critical factor to consider. The forex market is pretty liquid with a vast turnover daily. The correct pairing currency is, therefore, essential. According to data collected by Wikipedia, the US dollar tops as the most traded currency at 88.3%.
Even though trades are fewer than forex in the stock market, shares are also easily accessible and tradable. This Market Watch report lists the most liquid stocks at Nasdaq.
Duration of your Goal
Your main goal of investing should determine which trade to choose. The exchange of currency is better for short term goals due to its market nature. Investing in stocks used only to be long term with profits mainly dependent on the company’s growth in value. Trading has changed with products like CFDs that allow you to trade either short or long term regardless of how the market moves.
What then?
There is no definite answer on which trade is better than the other. It all depends on your personal preference, your goal, and your risk capacity. Short trades are better with forex, while stocks work best with long term trades. ETF is also a popular way to invest in both trades.
You can choose to trade in person or through a broker.
