The forex market and the stock market are the two most popular global trading platforms, but each boast their own unique characteristics that make them distinctly different entities. Today, the forex education experts over at Learn to Trade are delving deeper into the differences between the two, helping you decide which market is right for you.
Perhaps surprising to some, the forex market is astronomically larger than its stock counterpart. With over $5 trillion estimated to be traded daily on the forex market, the world’s most liquid market significantly overshadows the dollar volume of all the global stock markets combined.
Higher trading volume can be an attractive prospect to traders, as generally this means valuations are more desirable and trading opportunities are ripe.
Trading hours on the stock market are dictated by local time zones dependent on which market you’re trading on. Typically, these are between the hours of 9am and 4pm, but this varies per market. As a rule of thumb, stocks are traded between the local business hours within the relevant time zone.
As a globally interconnected trading platform, the forex market, on the other hand, is open 24/5. This means that it’s open 24 hours a day throughout the working week, incorporating all of the world’s major time zones into the trading day. As trading is facilitated through an interbank market, as opposed to traditional transacted exchange, trading on the forex market really can take place from anywhere at any time.
To the part-time trader or investor, the flexibility of the forex market is of great appeal, as entering and exiting the market can be worked around daily schedules at a time convenient to the trader.
There are quite literally thousands of stocks to trade on the stock market at any given time, making trading options plentiful.
On the forex market, contrastingly, trading is commonly practised within the major currencies – of which there are 8. With just 8 primary currencies to focus on, forex traders are able to observe valuation trades and market movement easily, with variables that are sure to affect currency values simply monitored through an economic calendar.
As a rule of thumb, markets that trade in higher volumes tend to have higher liquidity.
As mentioned above, the forex market is the world’s most liquid market, meaning tighter spreads and lower transaction costs. Typically, major forex pairings have very low spreads and transaction costs compared to stock – resulting in the prospect of greater profitability.
Deciding which market is right for you is dependent on your own preferences and ambitions, but both provide a great opportunity for significant profitability when traded correctly. Whether you’re more for forex or you prefer stock, always ensure you have the sufficient foundation knowledge before risking any capital.
John James is a content writer for Learn To Trade, the foreign exchange education and learning specialists – offering a range of training courses to help people understand the currency trading market, as well as its opportunities and risks.