When it comes to investing, common sense means "investing in stocks". The stock market still stimulates the collective imagination. But is it really the most convenient investment object? This question is easy to answer if you compare the stock market vs Forex trading. Here are the 7 most important differences between these two types of trading.
Forex Trades Around the Clock
Market hours. The stock market is open at predefined times. For example, the London session starts at 9 am and ends at 5 pm. Forex trading, on the other hand, is open 24 days a week, 5 days a week. For a closer look at trading during this extended window, see evening trading.
Lower Trading Commissions
Commissions. The second point in favor of Forex trading. Trading in stocks means paying more or less heavy commissions to the broker or the entity acting as an intermediary. It is rare for a broker of Forex trading to charge commissions to its users. This happens, and not even often, if the broker is a bank or a credit institution.
Liquidity and Market Making
Market making. Those who invest in stocks are constrained from a liquidity point of view. Orders are executed only if liquidity is sufficient. In principle, this also happens in Forex. In practice, it almost never happens. First, the foreign exchange market is the most liquid in the world. Secondly, brokers are market makers, i.e. they always and in any case prepare the necessary liquidity for the execution of orders.
Going Short Is Simple
Easy short. If a stock trader sells a stock, the broker gets in the way, as the sale can cause some problems for the intermediary. In Forex, there is no problem: for Forex brokers, selling or buying is the same thing.
A Shorter Supply Chain
Short supply chain. When trading in stocks, investments are mediated by the presence of some subjects. This slows down orders and overloads operations with costs. In Forex trading, the supply chain is very short, the only task of brokers is to connect the trader to the market (and cover liquidity, if necessary).
Resistance to Price Manipulation
Market falsification. The risk is always there, also because when an institutional investor comes into play, prices move suddenly. The enormous liquidity of Forex, however, reduces the impact, preventing the market from being distorted. For a broader comparison of the two markets, see forex versus stock trading differences.
Fewer Instruments, Simpler Choices
Simplicity. Trading with stocks means choosing between hundreds and hundreds of titles. Currencies are much less. This may seem like a disadvantage. However, it is an advantage if you are a beginner and want to approach without wasting years studying. Those who start with Forex trading are therefore facilitated, compared to those who start investing in the stock market. The two markets also run on different fundamentals; see how fundamental analysis differs between markets.
