Forex Market vs Stock Market

Investing in the Forex market offers huge advantages over buying and selling  shares in the stock market especially if you’re a small investor who does not have a large capital to invest. Here are the main advantages of the Forex market with respect to stock trading:

The Forex market operates 24 hours a day

The Forex markets operates continuously 24 hours a day, Monday through Friday. This market opens on Sunday at 14:00 hours (New York time) and closes on Friday at 16:00 hours (New York time). In this way,  traders from around the world have the advantage of being able to react quickly to the main news of the market and can set their own schedules to trade as they have the possibility to trade during the trading sessions in the financial markets in United States, Europe and Asia.

The Forex is the most liquid financial market

The currency market has a daily trading volume 50 times larger compared with the Stock Exchange of New York. For this reason there are always brokers and agents who are willing to buy and sell currencies in the market. The high liquidity of the Forex market helps to ensure greater stability in the prices of these assets which is another of the great advantages of the currency market. With the stock market this is not the case, and there are periods in which there is not enough liquidity in the market to ensure trades with fair prices for the trader.

The Forex market offer a high leverage up to 1:500 or even more

The dealers and brokers in the Forex market will offer the investor a leverage of 1:100 or even more during their trades. Off course, this leverage is much greater  than the 1:2 margin offered by stock brokers and the 1:15 leverage offered by the brokers in the Futures market. The leverage in some Forex brokers can be up to 1:500, but usually these companies offer 1:100. With a 1:100 leverage,  the investor only has to deposit a margin of only $1,000 to open a position of $100,000 (one lot), which means a margin of only 1%.

Lower transaction costs

A basic analysis based on costs will tell us that Forex trading is more efficient than stock market taking into account trading costs and commissions that the trader must pay. In Forex, the costs are directly related to spread of buying and selling which at the same time depends on the type of broker. For example, the Market Maker brokers obtain their profits directly from the spreads while the NDD  (Non Dealing Desk)  and ECNs brokers charge fees (these fees depends on the volume) for transactions which are however much lower compared to the stock market.

Likewise, the investors trades with the spreads offered by some of the largest banking institutions in the world. With regard to the stock market, transactions without commission are typically offered only with clauses which require a fairly high minimum account or a minimum of transactions per month.

The Forex has the same potential for profit in bull and bear markets

Whether we open a bullish or bearish position, an investor in the Forex market always has a long position in one currency and a short position in the other currency (remember that in the Forex market the transactions are made with currency pairs like the EUR/USD).

A long position is one in which a trader buys foreign currency before the price rise and thus the investor profit from the rise in price in the market.In a short position occurs the opposite, the gains are obtained with the fall of the price. In the Forex there are no restrictions on short positions regardless of which direction the market is moving at the moment unlike the stock market which have more restrictions in this aspect.

As Forex trading involves buying one currency and selling another, a trader has the same possibility to negotiate in an emerging market as well as in a mature market. This is another advantage of the Forex market, the ability to sell currencies without any restriction.

The information in the Forex is more accessible and easy to interpret

In the stock market the information available about the many stocks is plentiful as the number of shares, so the trader can get overloaded with tons of information. This makes finding opportunities to trade successfully in this market means having to investigate and verify information from thousands of data on the stocks, a process that can be time consuming and tedious.

Meanwhile, in the Forex market the trader can concentrate basically on a few currency pairs to trade. While there are a lot of currency pairs in which a trader can invest, is in the EUR/USD, GBP/USD and USD/JPY in which the investor can turn his attention because it is in these assets that is concentrated most of the trading volume in the Forex market.

Furthermore, in the stock market the vital information which usually tends to move the stock price are the profits, losses, the financial statements and other factors related with the financial health of companies which often are reluctant to disclose this data. For this reason, in many cases the  investors (mainly the small investor) have to trade almost blindly without knowing what awaits them.. By contrast, the information related to the Forex market consist basically in economic and politic reports made public by governments, central banks or  related research institutions. These data are generally reported to all stakeholders at the same time.

The following is a summary which compares the market Forex with the stock market:

Main features of the Forex market

  • It is the largest financial market worldwide and it offers the highest level of liquidity compared with any other market.
  • This financial market operates 24 hours a day, Monday through Friday.
  • The trader can make profits both from a rising market and a falling market.
  • There are no restrictions to open short positions.
  • The Forex brokers trading platforms make use of high technology so that executions are made at the price indicated by the user. This applications includes many market analysis tools.
  • It offers a greater leverage which means a higher risk but at the same time increases the chances of profits. That is why the Forex is seen by many investors as more profitable.

Main features of the stock market

  • The stock market offers an acceptable level of liquidity but that liquidity depends primarily on the trading volume of each stock which can vary substantially from one stock to another. For this reason, depending of the market conditions, there are periods when liquidity is quite low, especially in low volume stocks, so traders have little opportunity to profit under these conditions.
  • This market is not open 24 hours a day. Depending on the country, the sessions last seven hours or less. The trading session of the Stock Market in New York last 7 hours.
  • The commissions to trade in the stock market are high compared to the Forex market so it is expensive to conduct small trades.
  • In many stock markets there are some restrictions to open short positions and in some cases these exchanges do not even offer that option like some stocks exchanges of Latin America and other regions.
  • In the case of the stock market, given the number of steps required to complete an order, the probability of having errors and that even the order is not executed at the price expected by the trader is higher compared with the Forex market.


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