Put together, the foreign exchange market and the stock market are responsible for the great majority of all the volume that is traded in all financial markets. With millions have already been attracted to these markets and thousands being attracted every day, it is time to take a look at both for the purposes of comparison.
Asset diversification might dictate that you favor more than just one market for the placements of your capital. But at the end of the day, you need to make a decision with regard to the primary market of your choice for most of your assets.
So let’s take a look at both of them and their features to see what is their similarity and what is their difference, so you can make a better and more well-informed decision.
What Is the Forex Market?
The forex market is short for the foreign exchange market. This is the biggest financial market in the whole world with the highest amount of liquidity and also the highest amount of traded volume, even on a daily basis compared with any other market.
The forex market enables the trade of foreign currencies. In fact, to be more precise, the forex market allows the trading of foreign currency pairs. A currency pair, as the name suggests, is made from two different foreign currencies.
In the forex market you do not actually buy and sell these currencies. Rather, this market is mainly known as a speculative market.
This means that the majority of what traders do is making speculations about the price or value of currencies against each other.
There are a countless number of pairs that are available for trading in this market, making it one of the most diverse markets with regard to instruments.
What Is the Stock market?
The stock market is also among the most liquid markets in the world with a high trading volume – though lower than the forex market. In terms of public awareness, the stock market is perhaps the most well-known financial market in the world.
As you may know, the stock market allows for the trading of stocks and shares. Although you can actually purchase the stocks and hold them, a great part of the market also has to do with speculative trading. This is especially true in the case of penny stocks.
Penny stocks are one of the two major types of stocks that are available in this market. The other one being blue chip stocks.
Blue chip stocks are the shares belonging to well established and famous companies or organizations. These are of course traded publicly and listed on large stock markets, such as the New York Stock Exchange.
On the other hand, penny stocks belong to smaller companies. Those that have not been able to make a name for themselves yet. And they are not listed on reputable exchanges. So, even though they have a higher risk of loss, they also have much higher odds for profits.
What Are the Differences Between Stock Market and Forex Market?
So what are the differences between these two markets? In this section we are going to focus on where these two markets differ from one another.
However, please keep in mind that much like any other financial market, there are many similarities between these two markets and how trading is carried out in them.
Difference in Trading Time
The forex market is rather well-known for its particular timing. Forex is said to be the market that is always running – well, except for the weekend of course!
All in all, the forex market is active 24 hours a day for all the weekdays. The reason the forex market is able to run around the clock for this long is because of its decentralized nature. It is made from numerous decentralized markets around the world that together form this market.
The stock market, on the other hand, has a more limited timetable than the forex market. And they are definitely not made from decentralized sessions that connect with each other. Each market stands on its own. And each market has its specific working hours. These working hours usually coincide with the conventional working hours – i.e. 9 to 5 – though there might be some variation.
Difference in Trading Volume
Another point of major difference is in the volume that is traded in these two markets. The forex market is again standing out from the crowd with regard to this factor. Because the volume that is traded in the forex market is truly unsurmountable by any other market or even some of them put together!
This can be a great advantage for the forex market, since there are certain strategies that are specifically designed to take advantage of such a condition in the market.
But the fact that the forex market has a higher amount of trading volume does not mean the stock market is at a disadvantage.
The stock market still has one of the highest trading volumes, though less than the forex market.
Difference in Volatility
Volatility is a point of difference where there is a lot of distance between these two markets.
The forex market, due to its incredible amount of liquidity and trading volume, is a kind of market where traders can find a lot of volatility. But why is volatility good?
There are numerous trading strategies that are built around volatility. They are designed so that the trade can get in quickly and get out just as fast. This way they can gain smaller margins of profits but at a much higher frequency. This is how we have so many day traders and scalpers in the forex market.
The stock market, however, offers a lesser degree of volatility compared to the forex market. This is why traditional investors who want to buy and hold, choose this market as one of their top choices.
Difference in Trading Strategies
One last point of divergence between these two markets is with regard to the trading strategies that are available to traders.
It is an undeniable fact that the forex market has a much diverse range of strategies available. This is because of the fact that this market offers a much higher rate of volatility. Therefore, a simple approach of buy and hold is not going to be useful in this market.
Forex or Stocks; Which One Is Better?
Of course, it wouldn’t be true or fair to say which market is better than the other. This is a completely subjective view of the matter. So, it is totally up to you and depending on your needs.
If you are looking for a faster paced market where you can trade on a daily basis and earn profits from small movements, then the forex market might be a better choice for you.
On the other hand, if you are only thinking about diversifying your portfolio and want to put some of your money somewhere a little bit safer for the long run, then you can opt for the stock market.
The forex market and the stock market are both among the most important and largest financial markets in the world. Although there are many similarities between the two markets as to how they function and their underlying speculative nature, there are many differences between them as well, including their trading hours, trading volume, volatility, liquidity, and even trading strategies.