Forex vs Stocks: Forex Trading vs Stock Trading - Which Should you Trade (2024)

Let’s Take a Look at How the Two Markets Stack Up Against Each Other

Forex Trading vs Stock Trading, In this article we will help you decide which of these two markets is more suitable for you as a trader.

Active investors with an internet connection have almost instant access to a wide range of trading tools, from stocks and industrials to futures and forex. While the markets are all somewhat interconnected, there are stark differences between them.

That is why when deciding which market to trade in, all of the differences and similarities need to be examined before making the right decision. It’s very important to know yourself and which trading style you’ll be bringing to the table in whichever market you decide to jump into.

In addition to understanding yourself and your trading style, the other main factor in determining which market is right usually rests on your risk tolerance.

If you’re more of a buy-and-hold type of investor, stocks are probably better for your style. However, if you’re a short-term trader who doesn’t mind volatility, markets like forex might be more your thing.

The Similarities Between Trading Forex and Trading Stocks

The main similarity is that success in both markets depends on taking advantage of constantly changing prices.

Most foreign exchange and stocks traders use the same popular strategy, technical analysis. Both traders use the same methods of price action analysis, to determinate how to trade.

You can trade both markets in two directions – take a long trade or a short-selling trade.

Both stock traders and Forex traders need discipline and a work plan to succeed. Without discipline, your ability to succeed in trading is very low.

Forex Trading vs Stock Trading – The Differences

Trading regulation

Trading on major exchanges like New York Stocks Exchange (NYSE) or Nasdaq is done under heavy regulation to prevent manipulations of all kinds whereas forex trading has a lot less oversight and regulation.

For some traders, the heavy hand of regulation present in the stock market may feel too restrictive. However, these regulations protect investors in ways they are not covered in the forex market.

Leverage/Margin

This is one of the most appealing aspects of forex to traders who are not risk-averse. In normal stock trading, the maximum leverage available is 4:1. On top of this relatively low ratio, there are also qualifying requirements a trader needs to go through before being approved for it. Many traders never qualify for a margin account.

In the forex market, things are very different. In order to gain access to an account with high leverage, a trader only needs to open an account. Once active, a trader can access up to 200:1 leverage in some countries. However, in the United States, that number is limited to 50:1.

In this case, it might seem like higher leverage is a good thing, however, you must remember, trading with higher leverage will usually mean an easier way to blow up your account. You must treat leverage with the respect it deserves.

Trading hours

The forex market is a continuous market that stays open 24h a day. For some traders who come alive at night, access to the forex market is a big plus.

The stock market hours are 9:30 am to 4 pm EST Monday – Friday (excluded Premarket and Aftermarket hours). For some traders, restricted trading hours are necessary. It gives you the ability to keep focus and to set up your schedule.

Market volatility

Many short terms and day traders rely on volatility in order to profit on sudden swings in the market.

This practice is common on both markets, so both stock traders and forex traders will be able to enjoy high volatility.

Market Size and Volume

A quick glance at both markets shows an enormous difference in size between two markets. With an estimated trading volume of $5 trillion a day, the forex market dwarfs the combined value of all of the world’s stock markets combined. Those markets trade around $200 billion a day.

The forex market gives you high liquidity to get in and out of a trade easily.

The high volume of the forex market means traders can generally get their orders executed closer to the prices that they want. The higher liquidity of the forex market also means that traders are better equipped to enter and exit the market.

Catalysts and price influencers

In the world of forex, price is mainly influenced by global economic news.

This differs from stock prices which are mostly moved by news associated with the company’s stock or the industry in which the company falls under. That news moves stocks on a daily basis, which means that every day you will have amazon potential trades.

Both markets are prone to shifts in response to large-scale changes in economic conditions or political shakeups which may interfere with the economy.

Commission and trading costs

Today most American brokers don’t charge commissions on executing a trade. If it’s a broker outside of the US it will usually charge between 1c per share or a minimum of $2, so if you bought 300 shares of AAPL (Apple inc) you will pay $3 (1c per share) and when you will sell those shares you will pay extra $3. If you bought 50 shares of AAPL you will pay $2 (minimum), and not 50c.

In forex, it’s common to pay a commission of $4 per 1 lot, and the spread between currencies.

Number of assets

In the stock market, there are thousands of assets to be traded, stocks, and ETFs. You can trade all the big names such as Apple, Google, Amazon, Netflix, Microsoft, Tesla, and many more.

Whereas in forex, most of the focus for traders and investors will be on the 7 majors, that have been traded against the USD.

Dividends

stocks holders can receive dividends, while the stock will drop as dividends heighten, companies that share dividends are profitable companies, and usually, their stock will return to the price before.

In Forex, however, there is no dividend sharing.

Real assets vs. contract

When you hold stocks, you are holding real, tangible assets. However, in forex, you hold a contract between yourself and the regulated broker.

Trend vs. Range
When it comes to analyzing and understanding the market structure, the main difference between stocks and forex is the way they move.

While stocks tend to move in a trend and reach new and higher prices, Forex pairs tend to move in a range. You usually won’t see EUR/USD move higher than 1.5 or lower than 1, but a Tesla stock can easily move from $1200 to $800

What Kind of Trader Are You?

Now that you know the similarities and the differences between these two markets, the next step to determining which is best for you is to ask yourself what kind of trader you are.

Are you a short-term trader, also known as a scalper? Are you a medium-term trader, or are you, long-term trader?

Short-Term (Scalping): Both the stock market and forex market are relevant for short-term traders, there is no big difference for this type of trader.

Medium-Term (Swing): The stock market is closed every day and therefore suffers from much more GAPS in the price which is a bit riskier for the swing traders.

Long-Term TRADING: Holding positions in the stock market for the long term can be rewarding by Dividend in some stocks.

Which Market is Better for You?

In order to know which market you’re better suited to trade in, it’s crucial that you understand your trading personality and style.

When you know yourself well, you can match your strengths with the market that best plays to them.

Understand your approach to risk, the times you trade at your best, the duration with which you’d like to hold on or sell your trades, and your overall goals, then you’ll be able to decide which market you’re more likely to thrive in.

Forex Trading vs Stock Trading which is more profitable

Which market is more profitable? Both markets have the same potential. The answer is it depends. It depends upon the market conditions, the timing, and most importantly, your skill.

The leverage in the stock market is limited to 1:4 while the leverage in the forex market can get up to 1:50 in a regulated broker, Remember that leverage cuts both ways. It can be a formidable accelerator or it can crush you.

In contrast, today still the most profitable way is to Buy-&-hold stock for the long term.

As for traders, The people who make the money are the ones who are slow and steady traders. They have money/risk management, They do a lot of homework, spend a lot of time researching, and constantly monitored their holdings. Those people will do well.

These are traits that if you adopt and realize that it is not a “game”, this is life, you can earn both Forex and Stocks.

Do you have the skill to be a serious investor/trader… then maybe the sky’s the limit for you!

Forex Trading vs Stock Trading The Bottom Line

Ultimately you’ll need to weigh the pros and cons of each market to decide which path is ideal for your personality, skills, and style.

But if you’re a self-motivated, not afraid of volatility, short-term preferred type of trader, the forex market might just be right for you.

Whichever market you choose to jump into, just make sure you stick with your trading plan, continually learn, and believe in your abilities while respecting your shortcomings. A lucrative career in trading is within reach if you’re willing to commit and do the hard work necessary.

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