The FOREX trading has as many similarities to stock trading as it has differences, and if you are interested in starting to invest in either of them, it is very important to analyze each one of them first before you take any decision. Whether in the stock or in the FOREX market, trading can be very risky, you need to know as much as you can since trade should only be done with risk capital (money that, if lost, does not harm your lifestyle).
Let’s start by asking ourselves the question: what is the FOREX market?
Also known as FX or currency trading, it is a decentralized global market of all currencies traded worldwide. This market is the largest and most liquid in the world and has a daily volume of operations that exceeds $5 trillion. Not even all the stock markets in the world together approach this. FOREX trading offers interesting trading opportunities that are not available in other investments, which gives it more profitability.
The stock market is where securities of listed companies can both be bought and sold, either in over-the-counter transactions or through centralized exchanges.
The stock trading world has established itself as a free market economy in which it offers companies the ability to access a capital exchange of a portion of their company’s property to those interested external agents. The stock exchange offers the opportunity for investors to increase their income with the high risk of introducing their businesses in large operating and general costs. On the other hand, the sale of shares helps companies expand exponentially.
As in the stock market, you can change the currency based on what you think it’s worth. The big difference with the FOREX is that you can trade up or down with the same ease.
If you think that a currency can increase the value, you can buy it, if you think you can lose the value you can sell it. With such a large market, you will find a buyer when you are selling and selling when you are buying; it is much easier than in other markets. For example, maybe you hear in the news that China is devaluing its currency to attract more foreign businesses to its country. If you think the trend will continue, you can do a FOREX trade, selling the Chinese currency against another currency, for example, the US dollar. The more the Chinese currency will be devalued against the dollar, the greater will be its benefits.
Differences between FOREX Trading and Stock Trading.
- The most important and notable differences are the negotiation schedules.
While both merchants operate in a strict time, the FOREX market operates 24 hours a day in 3 break sessions throughout the year and also has the power to choose between Asian, European or American business hours. While the stock market generally operates for 7-8 hours in three trading sessions.
- Timing is the starkest difference between traders and investors, but their focus also differs dramatically.
That is because investors studied the potential of a company for long-term growth, while traders focus more often on the use of small errors in the market, such as when uncertainty in a foreign country of the shares of a United States manufacturer.
- The FOREX market is much faster compared to the stock market.
The operations are carried out at the counter, which means that the operation is carried out instantaneously without delay. In the case of stock trading, it is necessary to wait for the order to be executed due to the intermediary between the operations.
There are even people who believe that FOREX trading is more complex than the stock market, and you need to know many formulations and strategies to trade FOREX.
- Unlike the stock market, the FOREX market is characterized as a completely independent market for traders.
It is also called as an over the counter (OTC) exchange. And it can be marketed according to the location, demand, rules and regulations of the government. Therefore, the FOREX market, in terms of liquidity, is larger than the stock market.
- When you buy securities from a company, these are commonly associated with the increase in the value of that company.
Therefore, trading with FOREX or stock markets can also be chosen for both the investor and the owner of the company.
However, there is a negative risk depending on the number of shares acquired which may cause the loss of capital in the stock market environment. If the values of the company lose value, the same thing will happen to the operators.
It is important not to forget the phrase of the famous newspaper columnist Will Rogers: «Do not play, take all your savings and buy a good stock and hold it until it goes up, then sell it, if it does not go up, do not buy it».