Forex vs Stocks

Did you know a lot of stock traders are also forex traders? In fact, the two are often considered interconnected, and are two of the most popular markets in the world. The reasons are simple: forex and stocks both have little to none entry threshold. You can start trading with a small fund and slowly build up your investment. However, they’re still different markets. So when it comes to forex vs stocks, which is the right investment for you? 

Day Trading with Forex

Unlike stocks, the forex market is extremely volatile. This means there could be multiple price changes within a day, which gave birth to a unique trading form in the currency market — day trading.

As the name suggests, day trading is done within a day. Depending on the method used, some traders will conduct multiple trades on the same day, such as those doing scalping. Day trading is fast-paced and requires a good understanding of the market. Traders mostly rely on technical analysis based on the pricing chart plus information they’ve gathered that may impact the currency’s value to make decisions.

While similar analysis is also applicable to the stock market, it is not as intensive compared to forex day trading. 

Forex vs Stocks — Key Differentiators

Now, what are the other key differentiators between forex and stocks?

Long Term vs. Short Term

With forex, you can choose to be an aggressive day trader, or you can position the currencies for long-term returns. Meanwhile, stocks are generally a long-term investment where you hold onto your shares and maximize return with the dividends you receive. Therefore, although forex and stocks both function on the “buy low, sell high” principle, with stocks, traders typically focus more on the company’s development potential down the road.

Market Hours

The stock market has an actual “business hour.” Using the US as an example, the market opens from 9:30 a.m. EST to 4:00 p.m. EST on weekdays. Meanwhile, the forex market gives you more flexibility because it is open 24/5 around the clock with 24/7 customer services at most times. However, with the forex market hours, you will need to take time zone differences into consideration.

Liquidity

How easily can you buy or sell? Both currencies and stocks are high-liquidity assets with low transaction costs compared to other types of investment assets. However, stock still falls on the lower liquidity side when compared to forex due to the fact it is still more of a mid-to-long-term investment. In other words, the volume of stocks traded daily is much lower than the forex day trading volume.

Also, the less popular the stock, the lower the liquidity. Since not everyone can afford the elite shares that are traded frequently every day, the same amount of funds will get you assets with much higher liquidity in the forex market.

Conclusion

Have you chosen the winner in the forex vs stocks battle? Both markets are profitable when you do it right, and both are friendlier for new traders compared to more complex assets. If you’re fast to react and love technical analysis, forex day trading would give you the thrill and return you want. Think you may be a good forex trader? Begin your research and create a demo account with your chosen broker today. For more, check out FXTM review.

Happy trading!