Stock market vs forex

Stock market vs forex
Stock market vs forex
In this article, we review the characteristics of the stock market and Forex, and list the advantages and disadvantages of each. The foreign exchange (forex) market is known as the largest financial market in terms of liquidity. In this market, various currency pairs are traded on a daily basis, from common and major currency pairs to non-major and exotic currency pairs.

Forex traders use forex pip (percentage in point) to study Forex price changes, and take advantage of price changes. The most popular and traded Forex currencies are the Euro against the US Dollar (EUR / USD), the British Pound against the US Dollar (GBP / USD) and the US Dollar against the Japanese Yen (USD / JPY).

On the other hand, trading in the stock market has made it possible for traders to invest in Blue-chip stocks and Penny stocks. Traders can also make a profit by using their price changes in the market. Stocks of companies with large capital and economic stability can be a good investment options. These companies include Microsoft, Apple and Amazon. If you are looking for more risk and more profit, you can also make money by trading penny stocks.

Differences between stock market and forex

Trading hours

Stock market and forex trading hours are different. The Forex market is active 24 hours a day, 5 days a week, due to the overlap of its activity at different local hours. This is one of the advantages of the foreign exchange market. On the other hand, there is a specific time for trading stocks per day, which depends on the location of the trader, and the exchange that provides these services.

For example, the London Exchange (LSE) is open from 8:00 to 16:30, while the Central Forex market is open from 8:00 to 16:00. This trading session overlaps with both New York and Tokyo trading sessions. Some exchanges in Asia are also closed in lunch time. Therefore, it can be said that Forex trading hours are much more flexible than stock market trading hours. Because of this, traders can spend more time trading foreign currencies. However, none of these financial markets are active during the weekend.

Available assets

One of the most appealing features of the Forex market is that it offers traders a variety of assets. At Aron Groups Broker, for example, it is possible for traders to trade more than 500 symbols in the Forex, metals, commodities, energy, stocks and cryptocurrencies markets. Of course, Forex traders are more willing to trade major currencies such as EUR / USD and GBP / USD, as these are the most stable currency pairs in the entire Forex market.

There are also many trading opportunities in the stock market. You can trade thousands of shares in the stock market in the fields of technology, pharmacy, automotive industry and more. These stocks include both blue-chip stocks and penny stocks. Some stock market indices can also be traded on the stock market. Among these indicators are the Dow Jones index and the S&P 500 index.

However, the variety of tradable assets in the stock market is not necessarily superior to the Forex market. Some traders prefer to trade on several reputable Forex currency pairs, rather than investing in equity stocks.

One of the advantages of the stock market over the Forex market is the possibility of trading exchange-traded funds (ETFs). ETFs are investment funds which consist a number of assets such as shares of various companies. Buying these funds allows traders and investors to become a shareholder of these companies, while CFDs do not allow this. However, stock market traders prefer to invest in the long run. For this reason, ETFs are a good tool for making this investment.

Volatility and liquidity

One of the aspects that can be used to compare the Forex and stock market is the volatility. This feature measures price fluctuations in financial markets. These fluctuations can both lead to profit and, in the event of a wrong trade, cause the trader to incur a loss. Forex traders are always looking for markets that offer high liquidity. High liquidity means that an asset can be traded without any particular problems. Therefore, high price fluctuations can be beneficial for short-term traders. Many forex strategies are such that a trade opens and closes in a short period of time. These trades are usually done with the goal of taking advantage of small price changes. Because of this, traders can open and close trades with high accuracy.

Instead, long-term traders who prefer to hold on to the assets they have bought may not feel comfortable with volatile conditions. These types of traders can be referred to as stock traders. Given that blue-chip stocks do not fluctuate much in price and are very stable, traders are more likely to buy stocks that are likely to grow in the long run. Therefore, while traders are not looking for short-term price fluctuations, they can not invest in a market with high volatility.

Margin and leverage

When comparing the Forex market with the stock market, leverage is the tool that makes Forex trading opportunities outweigh stocks. Opening a CFD (Contracts for Difference) account allows traders to trade assets by depositing only a portion of the true value of the assets. This feature enables traders to increase their share of the Forex and stock market, as they can multiply their profits by using leverage. Of course, using leverage also has the ability to increase your potential loss.

In general, the Forex market enables traders to use more leverage. The average leverage used by Forex traders is approximately 1:20. Of course, the provision of leverage depends on the conditions of the trader as well as the forex broker in which he operates. In the stock market, however, traders are given less leverage. The amount of leverage offered in the stock market is equal to 1: 5. This means that traders can trade as much as $ 50 in the stock market by depositing $ 10. However, more experienced forex traders can make better use of this tool.

Trading strategies

Another major difference between the foreign exchange market and the stock market is about the trading strategies used by investors. As mentioned earlier, many forex traders make profit in the short term. These short-term strategies include day trading, swing trading, and scalping. Of course, strategies such as day trading or swing trading can also be used in the stock market. However, strategies used specifically in the stock market are a bit less common, as stocks are usually traded on a long-term basis. This is while forex trading takes place in the short term, and in volatile conditions. Another advantage of the Forex market is the numerous training resources available to guide traders.

Stock market and forex; which one is more profitable?

Given all of the above facts, it is not possible to make a general conclusion about which market is more profitable to invest in. Investors should choose a trading instrument to earn money according to their characteristics, such as personality type, risk tolerance and trading goals.

Forex will be more profitable for you if your goal is to make small and multiple profits using short-term strategies. The Forex market is much more volatile than the stock market. However, in Forex it is possible to use very high levers. Given that many traders do not have proper risk management, many of them use leverage only to lose their capital. Therefore, always in the face of risky tools such as leverage, make sure that you use proper risk and money management.

If your goal is to buy an asset and keep it for a long time, the stock market is a safer and more legitimate option where you can make a good profit by investing in it. You can earn money by trading in Forex and stock market, using various trading strategies.

Correlation between stock market and forex

It is natural for investors and traders to look for common ground between the Forex and stock market, in order to anticipate future price changes of assets. In particular, the two markets, Forex and the stock market, are closely related. Thus, many indicators in the stock market affect the exchange rates of important currency pairs in the Forex market.

For example, before the global recession in 2008, investors noticed a trend between the Nikkei stock index and the US dollar against the Japanese yen (USD / JPY). With the Nikkei index falling, investors saw this as a sign of a weak Japanese economy, so the USD / JPY exchange rate was expected to fall under these conditions. This type of correlation is known as inverse correlation. On the other hand, if the Nikkei index increases in value, the Japanese yen will rise against the US dollar.

Traders and investors can use existing correlations to predict future asset price changes. Although there are many differences between the two stock market and Forex, these two markets are always in harmony with each other and follow the same technical patterns. Of course, the forecasts have no guarantee, and given the sharp fluctuations in the Forex market, the correlation between the stock market and Forex can change suddenly, without knowing where the next move of the market is.

Written by: Mohsen Mohseni (Aron Groups).
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