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Compare Forex Trading and Stock Trading

The Forex market (foreign currencies exchange market) has the highest liquidity of any financial market. Contrary to the stock market, forex is an unregulated market that does not use a clearing house and central exchange.

Historically, retail traders/investors have not taken up forex trading (traders take positions with shorter terms than investors), because the market for forex had been only available to Hedge Funds. In recent years, forex trading was opened up to retail traders. In comparison, retail investors have had access to stock trading for longer. Modern computer technologies and trader’s tools have enabled retail traders with internet access to access low-cost trading or to exchange foreign currencies. Low commissions and easy access have greatly improved the chances of retail traders to be successful in trading stocks or forex. Which one is better for the trader? Below are two comparisons:

Nature of the instrument
In forex and stock trading, the types of products that are bought and traded differ. In stock trading, the trader buys and sells shares of a company or country. In the world, there are a variety of stock markets. There are many different factors that determine whether a stock’s price rises or falls. To learn more, read my article on stock. In forex trading, you buy or sell currency pairs. The trader sells currency to the other country after buying currency from the first country. The word exchange was born. He hopes the price of the currency he purchases will increase relative to the one he’s selling. The forex trader basically bets against the other country on its economic outlook (or her monetary strategy).

Trading Hours, and the Disadvantages to Stock Retail Traders
It is important to note that the Forex market operates 24 hours, while US stocks are open daily between 930am and 4pm. Forex traders, on the other hand, can trade whenever they want. Stock traders however are only allowed to do so between 930am EST and 4pm EST. Stock traders face a disadvantage as the market is only open to investors during premarket hours (8:00am – 9:00am EST) or postmarket hours (4.30pm – 6:30pm). In these post-market hours and pre-market hours are when the majority of companies report their earnings that will have the greatest impact on the stock price. It means retail traders like us can only see the stock prices rise or fall during these times. In addition, the stop order will not be honored at these times. These forex traders don’t suffer from this major disadvantage. A stock broker can complement his/her stock trading by doing forex trading after stock market hours.

Data Transparency Overload & Analysis
There are many different types of stock in various industries. Traders need to conduct extensive research and select the best stocks for trading. Many factors affect stock prices. Foreign currency exchange rates are not the only factor that can affect stock prices. For forex traders, this allows them to concentrate on trading a limited number of currency pairs. At the same time, all data and information that may affect the currency rate is released in a scheduled, official manner. Therefore, retail forex traders will have better success rates than retail stocks traders. On the basis of these few points, the forex market seems like a much better option to trade than the stock markets, especially in times of uncertainty. In bull market conditions, stocks trading might be a good alternative. It is important that a stock trader seriously considers forex trading to augment their trading. Trading forex allows a trader to profit from any trading opportunity that may arise outside of stock market hours. Stock traders can also benefit from forex trading by gaining a complete picture of how the global economy operates and improving their stock trading skill.