The main differences between Forex and stock market

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Which market is better to trade in? This is one of the frequently asked questions of those who do not know the fundamental difference between Forex and stock markets. And although it seems that the assets are very similar (principles of trade, rules of conduct of the market),there are  a lot of differences. I have already touched this topic partially in the last article, but judging from the questions, there is a need to give this subject more attention. I will try once more to specify exact differences between stock and currency markets, and the decision is up to you!

Which market is better to trade in: Forex vs stock market

  1. Leverage

It’s kind of a bonus from a broker who allows the trader to open positions in greater volume. At first glance it seems that this is a great offer, in fact, with just 1000.e. if the leverage is 1:100 you can open a position of 100 000.e. receiving a yield of 1% not 10.e. abut immediately 1000! But here is the downside: when the loss is just 1%, a trader with that shoulder lose the entire deposit. Why experienced traders suggest a careful use of leverage, given the strategy of risk management (risk on positions not more than 10% of the deposit).

  • Forex: the leverage offered by the broker is 1:100 — 1:500;

  • stock market: the leverage is in the range of 1:1 to 1:10.

The greater the leverage provided to the trader by the broker, the greater the likelihood that the broker uses all means to extract money from the customer.

  1. Transfer of open position to the next day

For intraday strategies, this is not important, but in Forex, for example, dominate medium – and long-term positions. In case of their transfer swap accrues (a kind of commission).

  • Forex: it is possible to transfer open positions to the next day when you pay the broker a commission;

  • stock market: transfer to the next day is impossible or possible only in the case of credit shoulder 1:1, i.e. at the expense of own funds.

  1. Minimum transaction size

Forex brokers are trying all possible ways to attract customers by offering minimum trades from $ 1 with a minimum deposit of $ 10 or more. Which market to trade in? For those who have limited financial opportunities in the Forex market, because here the minimum volume of the transaction amounts by money equivalent. In the stock market the minimum lot size is 100 shares, 1 share, however may cost $ 10, and may cost $ 500, consider yourself.

  • Forex: 1-50 dollars;

  • Stock market: 100 shares.

  1. Minimum Deposit

Part of Forex brokers do not set restrictions on the minimum deposit. The smallest value of this parameter is in binary options — from $ 10. Forex brokers — 100-1000 dollars. In foreign stock markets to start with less than 10 thousand dollars makes no sense, although there are offers from 2 thousand.

  • Forex: 10-1000 USD;
  • stock market: 2-10 thousand dollars.

which trading market to choose

  1. The value of one point

Pips — another name for points. For example, in the quotation of currency pair EUR/USD 1,2733 1 point is equal to the value of 0.0001, in the quotations of securities 1 point is 1 cent (0,01).

  • Forex: the volume of deals in $ 1,000 1 PIP is 10 cents;

  • stock market: the volume of the transaction $ 1,000 (e.g., 100 shares at $ 10) value of 1 point is $ 1.

  1. The average daily volatility

Currency pairs are considered to be less volatile compared to securities. Depending on the output statistics of the shares of a company can jump in both directions by 10-50% in both directions in just 1-2 hours, whereas the average currency change its value at 0.5-3% daily.

  • Forex: the volatility of 0.5-3%;

  • stock market: leverage of 0.1-50% or more.

  1. Number of trading instruments

Which market to trade in? For reasons of diversity only in the stock market. The currency market is essentially pegged to the U.S. dollar (it expresses the value of other currencies). And if the dollar is stable, the market is sluggish and monotonous. The situation is different with stocks, where liquid securities can be found in all industries.

  • Forex: currency pairs not more than 10;

  • stock market: the number of liquid shares, including “blue chips” — a few thousand.

  1. The cost of the trading terminal, strategies, signals, EAS

Forex brokers already pre offer their clients several trading terminals to choose from, there are free testing strategies and signals.

  • Forex: free terminals, there are free and paid strategies, expert advisors and signals;

  • stock market: the monthly fee for the trading platform and the provision of charts.

  1. Working time for trading

In Forex you can work 24 hours a day, the stock market activity coincides with the opening of major exchanges.

  • Forex: how much you want and whenever you want;

  • stock market: trades are performed when the exchange is open.

  1. Transactions for the purchase and sale

Here, in what market it is best to trade, is determined by the goals of the trader and his risk appetite. Forex allows you to make trades in any direction, in the stock market open short positions without a covering may be prohibited. For example, during the IPO if the trader has actually no cash shares, then he cannot sell them.

  • Forex: free buying and selling;

  • stock market: possible ban on the sale of shares without real coverage.

  1. Preparation for work

  • Forex: 30 minutes;

  • stock market: a few hours (for the analysis of the market. Currency pairs in times less than the number of shares. So there are even special filters to work with stocks).

  1. The cost of the transaction

  • Forex: spread;

  • stock market: spread, commission for the opening and closing of the transaction, exchange fees.

When trading in Forex in small volumes, the question of taxes is not raised (you need to pay, but nobody does). When trading with securities it is hard to avoid taxation.

  1. Equipment

If you have only one laptop, the question is “which market to trade in?” not worth it. For trade 3 currency pairs it is enough. To trade stocks you need at least 2 monitors for permanent monitoring of schedules.

  1. Volumes

Forex is considered to be an OTC market, excluding currency futures, because there is no information on the volumes of transactions. The stock market volumes committed on exchange transactions are available to every trader.

Summary. Which market is better, everyone decides for himself, but I think you already noticed the difference. The stock market is more complicated, more varied, more dynamic, more serious, while the Forex trader even doesn’t know whether he trades inside the dealing center or came out to the world level of transactions.

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