The forex and stocks market are without a doubt two of the most popular markets in the world, each have a large number of participants on a daily or business daily basis. While you tend to hear more about the stock markets on your TV, it is in fact the Forex that is considered the largest financial market in the world. And with that, it brings along many advantages against the stock markets.
One of the big differences between the stock markets and the forex market is that, unlike the Forex, where you have to simultaneously buy and sell two different currencies; when trading stocks, you only deal with one stock at a time with each trades. (If you need some reminding of how Forex trading works or simply just still can’t wrap your head around it, here’s a great and simple intro from CMC Markets). This also means that you can sell a currency whenever you want, since there is no limitation on shorting, whereas in other financial markets, it could be difficult to sell short. If you think a currency will fall, as long as you meet the margin requirements, you can sell it at your fingertips.
Another difference is that the forex market is open 24 hours a day and 5 days a week, which gives you more flexibility in trading hours, as well as one of the main reasons why the forex market is the largest financial market in the world. The large side and the considerably longer trading hours gives the forex market a liquidity that is unmatched by all the other financial markets, with trillions being exchanged each trading day, it is relatively fast and easy to get in and out of a trade any time during the trading day.
In the forex market, there are 8 currencies that are the most traded, they are the Swiss franc (CHF), U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY). These 8 currencies make up for the majority of the trades in the forex market. In the stock markets, you always have way more than 8 stocks to choose from. While having many options may seem like a good thing, this also means that you may have to spend more time to make your investment decisions. On the other hand, the forex market is more concentrated, this allows you to focus your energy on the 8 currencies.
In stocks trading, you trade through a broker and pay a commission fee for every trade executed. This commission could get expensive if you are trading in smaller sizes and can sometimes completely wipe out your profits. However, in Forex trading, instead of a broker, you are really trading with a “dealer”, who buys and sells the currencies from and to you. There is no commission involved in each forex trade, and the dealer makes money off the “spread” – the difference between the ask and bid price. The spread is typically less than 0.1%, making forex trading a lot cheaper than trading stocks.
Because the forex is traded with leverage, some dealers even offer forex trading accounts with minimum deposit as low as $25, making forex trading extremely accessible to beginning investors or people who do not have a lot of start-up capital.
At the end of the day, remember, the stocks and forex are just two of many ways you can invest your money in. If you are still not sure about any of them, continue to explore and learn about the financial instruments you are most comfortable with. A lot of online brokers and dealers now offer free demo account where you can trade with virtual money and get a good idea of what trading is like. Utilize all the resources before putting your hard earned money in anything.