Trading on financial markets has become very accessible for anyone, thanks to online trading platforms and brokers. All you need is a computer or smartphone and a trading account. The rest is down to your skill as a trader.
There are many financial markets, but two of the most popular are stocks/shares and the foreign exchange (forex) markets. Each of these has unique characteristics and differences. And to make the most of each of these markets, understanding them is vital.
That is the goal of this article. We are going to examine what makes forex trading and share trading unique, to assist you in making an informed decision about which one is right for you.
The Forex Market
In the forex market, around $5 trillion is traded daily around the world. High volume trading is advantageous because you can get the prices you want and make trades more easily.
Because the forex market is worldwide, it is open 24-hours a day. When one market closes, another opens, so you can trade at times that suit you, rather than being tied to specific trading hours, as is the case in the stock markets.
The forex market is the most liquid. If you trade major pairs like U.S. Dollars/Japanese Yen (USD/JPY) and the Euro/U.S. Dollars (EUR/USD), you can enjoy low spreads and very low transaction costs. This is what makes forex trading so attractive to beginner traders.
Moreover, forex brokers charge zero commission on trades. They make their profits on spread margins. For an example of a reputable forex broker, open an easyMarkets forex account. You can try your skills via a demo account with zero risk.
The Stock Markets
Contrastingly, the stock market is open for just eight hours a day. At night, stockbrokers go home and do other things, whereas forex traders are apt to trade at all hours of the day and night.
The volume of trading is only around $2 billion each day, thus liquidity is a lot lower in the stock market. This means it is not as easy to buy and sell shares as it is currencies.
Most smaller companies don’t have a high turnover of shares. To trade in high liquidity stocks, you need to look at companies such as Google, Facebook, and Amazon. Or venture into the energy sector and buy shares in General Electric.
Whereas forex traders can make trades without paying a commission to their broker, share trading is not commission-free. Most often, you will have to pay a commission on top of the spread.
One of the upsides of trading shares is that the market is much bigger. There are thousands of stocks to trade. And if that isn’t enough to whet your appetite, you can also trade indices and futures. This is unlike the forex market, where currencies are traded as pairs. With only eight major currencies traded, you don’t have a lot of options, although you can venture into cryptocurrencies.
Which One is Right for You?
Forex trading is perfect for anyone who likes to trade 24/7 and is keen to take advantage of short-term market fluctuations. Share trading, on the other hand, is more suited to those with a long-term strategy and more capital to invest.