Forex trading involves the purchase and sale of different currencies. Sometimes, people may refer to it as FX trading or currency exchange. The value of a particular country’s currency varies with another in terms of value.
If you happen to travel to another nation, there is a high likelihood that you need to convert some amount of your cash into the local currency of the particular country. You notice a difference in the amount that you receive after carrying out the transaction.
In stock trading, investors buy and sell individual company shares known as stock. You can liken a share of stock to a small portion of possession in a company. Shares experience price fluctuations throughout a particular period.
The value of each individual share may change as a result of influence by factors such as overall economic status, management team and decisions of a company. Which investment is the best between Forex and Stock in 2020?
Understanding Forex trading
Forex traders exchange a particular currency, exchange it with another and take advantage of the difference in value. The objective of Forex trading is to purchase a currency when its value is down. The trader then sells it when it moves up in relation to the other currency.
Understanding stock trading
A stock trader targets to purchase a stock when its value is less and sell it when it moves up.
Two types of stock traders
Active traders
They try to time the market monthly and may place more than ten trades in that period. Additionally, they may hold their stocks for sometimes before they make a sale. They consider aspects such as the board of directors as they decide on which stocks to purchase or sell. Besides, they may also check the future of the company.
Day traders
They take advantage of price movements that take less time. Most of them won’t hold their share of stocks for up to two days at a time.
Some sell their stock some hours after they purchase them. Day traders do not mind much about the internal operations if the companies. They concentrate more on volatility and daily fluctuations of the particular companies.
Similarities between Trading Stocks vs. Forex
Stock and forex trading have some similarities.
Brokerages
A broker purchase or sells an asset on behalf of you and take some fee or commission as payment for their services. Brokers are present in both Forex and stock markets and play an integral role in facilitating a transaction.
It is possible to create an online brokerage account very fast and commence trading as soon as you deposit money into your account. In the United States, most brokers provide access to the stock market but not all of them who offers support forex transactions.
Short-Term Trading
Both stock brokers and forex & binary options brokers in India depend on short-range trading strategies. A stock trader to make a profit won’t have interests to hold her or his stock for long. Likewise, Forex traders hold their assets until such a time they can exchange it for a profit.
Technical Analysis
Technical analysis involves the use of indicators and patterns to tell the trader when it is appropriate to sell or buy an asset.
Traders who use this type of analysis do not spend a lot of time checking on the prevailing news. They examine the candlestick charts, which informs them whether a currency or stock will rise or drop in price.
Both stock and forex traders majorly depend on technical analysis to decide on what to buy or sell. Note that the price of a currency or stock may fluctuate within minutes. Therefore, your technical analysis program should be reliable to inform your trading appropriately.
Differences between Trading Stock vs. Forex
Despite the similarities, there are also distinct differences between stocks and Forex trading.
Leverage
Leverage allows traders to open a position larger than the funds in their account can. It is usually in ratio expression. Take an example where your account has $100, and the leverage offered by your broker is 100:1. It means that every $1 in your account allows you to trade with a power similar to that of $100. Therefore, the total capital you have in your account can place a trade with a value of $10,000.
Leverage is an essential part of forex trading since currencies usually don’t experience large price fluctuations. A currency may rise with $.0003 only in a day. That means that you need a minimum of $100,000 for you to get any substantial profit. With leverage, you can profit on the forex trades with only a little investment. However, it is risky. The way it has the potential of earning you a huge amount is a similar way it can sweep your account if you fail to make winning trade moves.
In the stock market, leverage is very rare. Most brokers have 2:1 leverage. The advantage of the stocks is that they have a larger change in value. Therefore, you can see a profit with very little investment.
Trading Hours
The forex market does not operate around a single set of hours. Each market has its operating hours. The highest liquidity is present when there is an overlap in trading hours. Forex market operates for 24 hours except during weekends.
Most people talking of stock trading usually refer to the largest world stock exchange. That is none other than the New York Stock Exchange (NYSE). It operates from 9.30 am EST up to 4.30 pm EST. It is open from Monday to Friday and closes on weekends and during major holidays in the United States.
Market Size
The forex market has a huge daily trading volume. It sees around five trillion dollars worth of trade in a day. Therefore, it is the world’s largest exchange.
The stock market is smaller compared to the forex market. The NYSE has a daily trade worth of around $169 billion. Although the number does not include the trading value of the foreign markets per day, the stock market cannot beat the forex market.
Conclusion
It does not matter whether you settle on trading forex or stocks. The bottom line is that you need a strong background in technical analysis. The two heavily depends on short term fluctuation in price.