Stock vs Forex Trading – A Comparison

Stock vs Forex Trading

As the world has become more technologically advanced and the trading markets have become more and more accessible, hundreds of people who might never have even glanced at a trading platform are paying attention. With talk of market crashes that never seem to happen, currency exchange rates that may not seem to make much sense and a wealth of jargon new traders are rushing to learn, the apps, online platforms and simply the availability of information have all made trading a much more attractive option for newcomers and amateur investors across the globe.

However, the question you’ll often see them struggling to find an answer to is this – Should you trade stocks, or forex?

With market accessibility, potential opportunities, trading styles, regulation and liquidity all making a huge difference, we’ve decided to put these two trading markets to the test. Without further ado, here is our comparison of stocks vs. Forex trading.

 

Market Accessibility

Accessibility to the markets throughout the day differs greatly between stock and Forex trading. In fact, stock markets aren’t overly accessible for those not dedicated to the act as their career. The ideal times for trading in the stock markets are thought to be between 9:30am and 4:00pm in your current time zone, as this is when the markets are active. The sheer speed of the markets also make these hours vital to follow, however it’s best to stick to 1-4 hour periods at most to prevent burn outs and mistakes.

On the other end of the scale, you’ll find that currency exchanges are far more accessible regardless of the time of day, so if you’re a night owl at home, or you travel on a regular basis, you’ll always be able to dip in and out of trades without having to worry about being in an ‘off’ period. Forex trading is a 24 hour, 6-days-a-week process so you can effectively trade anytime that you like.

Opportunity

Following on from accessibility, the opportunity that accessibility provides is often something to take into account. If you’re going by opportunity to trade, Forex markets tend to take the proverbial cake, with 24 hours in a day dedicated to trading and a relatively stable market in general. Of course, currency changes on a daily basis, with the exchange rates actually working fluidly against one another to create a near constant level of change. Compared to the volatility expressed during the overlaps of certain stock markets across the globe, this is still a much more fluid and predictable form of trading to consider.

Paired Trading

Paired trading in currency exchange can be both a useful feature and one that requires quite a bit of care to navigate correctly. Trading with Forex requires quite a bit of knowledge of not only the health of the economy of the currency you’re looking to trade, but you’ll also need to consider the health of the other half of the pair. Any movements that a currency can make, also referred to as ‘pips’, can be greatly affected by political turmoil or status in one country or the other, so keeping on top of the news to better predict market moves could prove beneficial in the long run.
For stock trading, the only entity you need to be concerned about is the company you’re looking to trade stocks in. You’ll need to have some knowledge of the company, how likely they are to perform in the future and, ideally, the industry that they operate in.

 

Regulation

Regulation can play a vital part in the success or activity of both stocks and Forex, but you’ll certainly find that there are more rules and legislation that you need to follow when trading stocks. Take the Canadian Securities Exchange, for example – on their website, the CSE provide all traders with extensive guides to ensure that all members are acting within regulation. Most of this regulation is issued by the Canadian Securities Administrators (CSA) and ensures that the exchange remains a Recognized Investment Exchange (RIE) under these terms.

Forex markets aren’t quite as heavily regulated, but you have to take note of the legislation regardless. The CSA also provide regulation for Forex, listing everything from specific areas of concern, to different updates to regulation that all brokers and traders need to follow, but this is nowhere near as extensive as stock trading.

Liquidity

In terms of liquidity, both stock exchanges and Forex tend to be fairly ‘liquid’, but it can ultimately depend on which stocks you choose for the former. Every stock is priced differently and can set you back a few dollars, or a few hundred all depending on what you want and what you’re willing to pay for it, but this can have an effect on how free flowing any one stock is.

For Forex, however, liquidity is never an issue and likely never will be. Cash is liquidity in and of itself essentially and when trading currency, you’ll find that all major currencies will be classed as highly liquid, simply because there’ll never be no currency left to trade.

When it comes to determining which form of trading is ideal for you, it’s best to listen to your own desires and which would suit your lifestyle best. If you know you aren’t going to be able to sit down for a set amount of hours a day between set times, stock markets may not be the ideal trading opportunity for you. Instead, a Forex market can provide you with the freedom and the flexibility to enjoy trading and get involved with the currency exchange, all without being tied to any particular time frame. Which would you choose?

One comment

  1. Very interesting comparison! I would personally invest in both but more on the stock market. I would also like to see a comparison between the stock market and the cryptocurrency market and ideas on how one can invest in both of them. The crypto market is hectic at times but a long term investment strategy should work well. I’m saying monthly investments (3% of your monthly income), into 20 or more coins, and not watching the day to day market but only take money out after 3-5 years. What do you think?

Leave a Reply

Your email address will not be published. Required fields are marked *