Forex Market And Stock Market – 80% of retail investor accounts lose money when trading CFDs with this provider. Investments involve risks and are not suitable for all investors. CFDs are complex instruments and have a high risk of losing money quickly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Our Forex vs stock trading guide will help you decide which market is better for you to trade on. We will compare their general differences in terms of trading, trading options, liquidity, trading times, market focus, margins, leverage, and more!
Forex Market And Stock Market
Someone new to trading will probably ask, “Which is better: Forex or stocks?”. Let’s start answering our question with a little economics 101. Today we find ourselves in a low interest rate environment. Central banks around the world are still struggling with mostly low growth. Loose monetary policy has been their main answer over the years. So what is the result for you?
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Basically, leaving money in the bank doesn’t do much good. In most major economies, interest paid on savings is lower than the rate of inflation. As a natural result, people are looking for better alternatives to invest their money in, such as the well-established financial markets of Forex and stocks. This article will consider the pros and cons of Forex vs stock trading.
There is no hard or fast answer to the question of which is better, forex vs stock trading. Whether we are talking for experienced traders or the stock market vs. Forex trading for beginners, when we compare, there will be benefits and disadvantages for each market and for each type of trader.
Ultimately it comes down to how important those features are to you personally. Let’s take a look at an overview of each market first, and then we can move on to draw some conclusions about Forex vs.
Stock market trading is immensely popular, but it is surpassed in size by the Forex market, which is the largest financial market in the world. When we weigh the stock market vs. Forex trading in terms of size, Forex takes the round. Why do we care about size? The larger the size of the Forex market, the greater its liquidity.
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The next important aspect to consider in the Forex vs. stock trading debate is liquidity. The Forex market is extremely liquid. This is a result of the large number of participants involved in the trade at any given time.
If you’re trading stocks, you’ll notice that big, popular stocks can also be very liquid. Vodafone and Microsoft are prime examples. Although once you move away from the blue chips, trading stocks can become much less liquid.
Liquidity makes it easier to trade an instrument. In general, superior liquidity tends to equal proportionally tighter spreads, and lower transaction costs. Let’s consider a business example, and compare some typical costs. Let’s use Microsoft as our liquid share, and EUR/USD as our liquid currency pair.
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The price of Microsoft (at the time of writing) is about $52 a share. The market spread can typically range anywhere from 2 cents to 5 cents for Microsoft under normal market conditions. This is a range of approximately 0.04% to 0.09%. Commission rates vary from broker to broker, but you can pay 10 cents per share. The commission is paid upon opening and closing the trade.
Now let’s compare that to EUR/USD. The most common type of retail FX trading is on a commission-free spread basis. This is how the Trade.MT4 account works. On such an account, you can pay 1 pip spread to trade EUR/USD, commission-free.
If you are interested in trading with Admiral Markets, it is important to note that there is a choice of account types available that offer a variety of services.
With EUR/USD trading at 1.1190, this is a round-trip transaction cost of 0.0001/1/1.1190. Want to know what works as a percentage? It is less than 0.01%. In the case of this comparison, Forex has the upper hand.
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The cost of the round-trip trading spread of the FX position is less than the market spread on the share. And there is more: once you factor in the share commission, FX trading is even more cost effective.
Perhaps a key difference when it comes to Forex vs. stocks is the scope of the trader’s focus. The next topic we will consider in the Stock Market vs. Forex trading debate is focus range. When looking at an individual share, you can get away with concentrating on a fairly narrow selection of variables.
While you are likely to take note of broader trends, factors that directly affect the company in question will be more important, along with market forces in its specific sector. Relatively narrow metrics will be of key importance, such as the company’s:
A currency reflects the aggregate performance of its entire economy. FX traders are therefore more interested in the macro economy. This is where the technical analysis of Forex vs stocks is different. In Forex, the focus will be more on general indicators such as:
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These will take precedence over the performance of the private sectors. When you trade an FX pair, you are trading two currencies at once. You are always buying one currency, while selling the other currency in the pair.
A fundamental trader, therefore, factors in the performance of not only one economy, but two. Of course, you can focus on technical strategies instead of looking at the fundamentals.
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When discussing Forex vs. stock trading, we must also consider trading hours. The Forex market is a 24-hour market, and does not have a single central location; therefore, the participants are spread around the world; and there is always a part of the market that is during business hours.
Differences Between The Stock Market And Forex Market
Trading of listed stock is limited, for the most part. Stock traders must adhere to stock exchange hours. However, several major exchanges have introduced some form of extended trading hours. Stock traders may be able to participate during pre-market, and post-market trading periods.
These were once the domain of institutional investors only. Advances in electronic commerce have made it increasingly accessible to retail investors as well.
The catch is that extended trading sessions remain remarkably low-volume and illiquid. When comparing volumes over a 24-hour period, Forex wins again. If you are looking to trade at any given time, the comparison is simple – Forex is the clear winner.
When we are trying to answer the question, ‘Is it worth it to trade Forex?’, specific features of the Forex market come to mind – such as Margin and Leverage.
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A big advantage in favor of Forex vs. stock trading is the superior leverage offered by Forex brokers. With leverage, a trader with a smaller amount of money can, potentially, earn a bigger profit in Forex profit vs. stocks. However, while the profits can be much greater, the losses can also be multiplied by the same amount, very quickly. It is in this way that Forex is more risky than stocks.
However, if you are physically trading a stock, you are likely trading without the benefit of leverage. If you trade stocks using CFDs (Contracts For Difference), you can trade on margin. Usually, the best type of leverage offered is 1:10. It is not unusual for FX brokers to offer 1:50 leverage, while Admirals offers leverage up to 1:30 for retail clients, and 1:500 for professional clients.
You can find all the details about the retail and professional terms, benefits, and compromises for each customer category on the Admirals website.
This offers the convenience of being able to command a larger position for a particular cash deposit. Of course, it is important to be aware of how large your underlying position actually is, and to fully understand the risks involved. Leverage can be a powerful tool, but it can also quickly bring your activities to a halt.
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Another common question traders have is a more specific one: when it comes to stocks vs commodities vs forex trading, which is better? We will discuss this now.
If we are discussing Forex vs. stock trading, it may be beneficial to also discuss commodity trading. When it comes to stocks vs commodities vs forex trading, which is better? Here is a brief description of the differences between each market.
Choosing between commodity trading vs. stock trading is usually based on a few key considerations.