Traders compare stock and forex market to know which market is good to trade. Though both are interconnected, yet they vastly differ from one another.
The forex market has characteristics which make it unique from the other markets and this is why it attracts so many eyes.
When choosing to trade in stock or forex with a broker like Universal Markets, it often comes down to knowing your trading style. Before suggesting which one is more profitable, you should know the differences between the two:
- While the forex market has a volume of $5 trillion daily and the major pairs chosen for trading are EUR/USD, USD/JPY, AUD/USD, GBP/USD, the stock market roughly has $200 billion volume per day. With such a huge volume, the forex offers so many advantages to the traders. It has more liquidity and equips the traders with better enter and exits.
- The forex market is highly liquid while the stock market is less liquid. More liquidity means low spreads and minimal transaction costs.
- Forex is a 24 hours market. You can trade from any corner of the world during different business hours and trading sessions. It runs for 5 days a week, round the clock. While stocks are merely 9 hours trading for 5 days a week.
- A lot of forex brokers usually don’t charge any commission; rather they earn their profits on the spread- i.e. the difference between buying price and selling price. Forex spreads are transparent in comparison to the other contract trading. For stocks, however, every broker charges some commission.
- There are 8 major currencies which traders focus upon while you have thousands of stocks to focus upon. With just 8 currencies pairs to deal with, forex has a narrow focus and you can easily keep an eye on them comparative to stocks, where there are thousands to focus on.
No matter whether you want to trade in forex or stocks, you can use Universal Markets as your trading platform and trade in any currency, stock or indices you want.
What should you trade in: forex or stocks?
Where you choose forex or stock, it depends on your objectives and trading style.
If you are a short-term trader (scalping), then you need to look to open and close trades within minutes and seek profits from small price movement. Hence you need to focus on the volatility of the market rather than the fundamental variable. This kind of trading is suitable for forex traders. You don’t need a big capital for it. You just need sufficient capital to sustain the margin requisitions.
If you are a medium-term trader, where traders just hold position for one or more days, and the trades are often initiated because of technical reasons, then you are recommended for both forex and stock trading. However, you need to have good knowledge of either of the market to trade in. Investing in stocks for beginners isn’t that easy, and they should thoroughly read multiple investment books. Technical analysis also plays a major part here.
If you are a long-term trader, where traders hold position for months or year, then you are suitable for stock trading because forex market will show great diversity within months. You need to have a large capital to cover the volatility.