Forex trading involves the buying and selling of currencies in the foreign exchange market. The aim of participating in forex trade is to profit from the difference that exists between the asking and bidding price of a currency, which is commonly referred to as the spread.
On the other hand, stock trading involves the buying and selling of stocks or shares in the securities market. Stock investors buy stocks when their prices are low, and wait for the prices of those stocks to rise so that they can sell, and profit from the price difference.
The following is a comparison between forex trading and stock trading.
Trading stocks implies purchasing stocks of companies that are publicly traded. Therefore, the supply of stock in the market will depend on the number of companies that have issued out an initial public offer on the company’s shares. The cost of shares is usually ranging from as low as a dollar to as high as hundreds of dollars.
Usually, the value of the company determines the prices of its shares. Also, the price of a company’s stock is influenced by the supply and demand for the company shares. High demand and low supply cause the price of the stock to rise, whereas a high supply and low demand cause the share price to fall or remain at its low level.
On the other hand, forex trade is different. A country’s supply of currencies for trade may fluctuate, but the forex market can never run out of currencies to trade. The asking and bidding prices of various currencies are often dependent on the developmental level of the country.
Additionally, interest rates within the countries affect the exchange rate of the currencies. A country whose interest rate is high means that it is experiencing high levels of investments and consequently lead to an increase in the exchange rate. However, nations experiencing low-interest rates witness low levels of investment, and consequently, the exchange rates are low. All major currencies across the world are highly liquid as they are often in great demand due to their great value and potential to appreciate. The vice versa is equally true.
Under forex trade, the currencies’ quotations are always in duos. Hence, when purchasing the currencies, you often have to consider the economic health of the two countries whose currency you are trading with and trading against. Hence, with forex, consideration over both entities must be taken into account.
On the other hand, while purchasing stock, you are mainly concerned as to whether the stocks’ value will rise. You never consider the prices of stock of other firms. You, therefore, make a decision based on the consideration of a single entity.
The forex market is easily accessible than the shares market. trading in the stocks market is often during the day, whereas the forex market operates 24-hour a day for 6 days of the week. The ease in fore market accessibility can be attributed to the presence of numerous exchanges globally.
Price Sensitivity to Trade Sensitivity
The price sensitivity to trade activity in both markets differs greatly. For example, the purchase of stocks up to 10,000 can influence the stock prices, more so with small companies.
On the other hand, forex market prices are less sensitive to trade activities. The Purchase of millions of a common currency has little to no impact on the market price of the currency.
Greater Freedom from Regulation
Stock trading is greatly influenced by numerous regulations in various exchanges. On the contrary, forex trading experiences less regulation. The stock market has some limitations on the stocks you can trade with and provides protection from fraudsters and scammers. Since the forex market is not highly regulated, you must be careful in the trade so that you avoid falling for scammers.
The forex and stocks market are very common. Most securities traders like to trade in stocks and currencies as they are easy to understand and access. From the above distinctions in the two types of markets, you can see that the differences are not major. You can trade in both and still make the trade in the two elements work out for you.