Forex vs. Stocks: Which Investment is For You?

This article was last updated on April 16, 2022

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There are 2 major financial markets to compare: Forex vs. Stocks. When choosing which market your conception of trading is best suited to, there are a few important aspects to consider.

First, however, we will clarify the difference between the stock exchange and foreign exchange.

What is the stock exchange?

Stocks are, by definition, a financial asset. They represent a share in the possession of an organization. By becoming a shareholder, you share in the profits and losses.

The stock exchange is a marketplace where the stocks of freely claimed companies are traded.

What is foreign exchange?

Foreign exchange, or Forex, refers to the exchange of currencies for each other. The value of a currency rises and falls depending on the current level of investment in it. By purchasing certain currencies, you're predicting their rise in value.

Stocks vs Forex

Accessibility

Until a couple of decades ago, trading stocks was done in particular locations. If you wanted to trade in the New York Stock Exchange, you had to physically be there. This meant that trading was limited by your current location and the amount of floor space available.

Forex, on the other hand, has never been location bound.

However, now that most stocks can be traded electronically, the stock exchange is just as accessible as Forex.

Margins and leverage

Stocks and Forex can provide limited margins and leverage. This means that the amount of growth you're capable of making is set by the broker.

For small amounts, stock brokers may offer a leverage as small as 1:2, whereas Forex brokers may offer 1:50. There is therefore a much higher potential in trading in Forex.

The disadvantage of the high leverage offered by Forex brokers is the potential to lose just as high amounts.

Forex brokers generally charge lower fees, as there is plenty of competition. Stock brokers, on the other hand, charge fees and commissions which can take a big chunk off your earnings.

Hours

The stock exchange has particular opening hours, outside of which it is impossible to trade.

On the other hand, the foreign exchange market allows trading around the clock on weekdays. This creates high volatility, which is vital for small trades. You can also carry out vital trades immediately based on new information, whereas with the stock exchange you may have to wait.

Variety and versatility

The stock market offers a huge amount of variety, as every openly claimed organization is tradable at one of the stock exchanges. This makes it virtually impossible to do the requisite research to be fully aware of the trade opportunities.

Most Forex brokers, however, trade the major currencies. The dollar is included in about 80% of Forex trades. It is far easier, therefore, to keep a realistic handle on potential transactions.

Saleability

Buying stocks is essentially an investment in an organization. When a stock is sinking, it is therefore difficult to find a buyer to sell to.

Foreign currencies, on the other hand, are valued against each other. Whenever you sell, you are not only offloading one investment, but buying another.

Conclusion

According to the categorisations above, Forex is by far the better market to trade in. While the stock exchange has its advantages, Forex is safer and has more opportunity for novice investors.