Although they somehow operate in similar ways, stock trading and forex trading do have some differences that can serve as reasons for traders to choose them. While both involve the actions of selling and buying on extremely competitive markets, their success and possibility of gaining profit it’s up to you! Here are the main aspects you need to consider before trading them.
How Stock and Forex trading work
The stock trading process consists of you buying partial ownership of a company listed on the Stock Market, through a stock certificate. Stock markets, also known as Equity markets, are marketplaces that give corporations the opportunity of gaining capital and the investors the opportunity to have partial ownership of the companies they want.
On the other hand, forex trading allows you to buy a currency by selling another currency. The sell price is called the bid while the buying price is known as the offer; the difference between the two prices is what the market calls the spread and it represents the cost of the trade.
The differences between the Stock Market and the Forex Market
The Forex market is one of the most liquid in the entire world and it is at your disposal 24-hours per day! This means that the value of currencies never sleeps and you can speculate on currencies whenever you want. The factors that can impact significantly the value of currencies are the world events. Everything that happens globally, from a summit, to an election or a natural disaster can affect the value of currencies, therefore, your trades. It is crucial for forex traders to stay alert over what’s happening around the world in order to trade successfully.
Distinctively, the Stock market is less flexible and everything revolves around the companies with which you share the ownership. If the company performs well, then the value of your stock rises and if it doesn’t, the value of your stock falls. Consequently, this criterion gives you the chance to react over time and not immediately, as stocks tend to have more gradual trends. The availability of the Stock market is limited to the exchange hours and you can only trade stocks only when that particular exchange is open.
Costs and chances of gaining profit
In forex trading you can use an instrument called leverage which can bring you huge profits or painful losses (leverage can also be used by companies listed on the equity market, but in a different way). It is a loan provided to the investors by the online broker in order for them to profit from the fluctuations in exchange rates between two different countries. In other words, leverage gives forex traders the opportunity to trade with more money than the actual sum present in their balance account, which can result in big profits if the trade is successful.
From another stand point, stocks can pay dividends! The term ‘dividend’ represents a sum of money paid regularly by a company to its shareholders out of its profits. This can bring stock traders a lot of joy and profit if the company is trending and performing well on the market. For example, imagine if you own stocks from (Facebook, Amazon, Netflix and Google) which have been the most popular and best performing tech stocks since 2017 and counting. That can’t be bad …
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