The Difference Between Forex & Stocks
We’ve been subtly talking about the differences between the Stock Market and the Forex Market throughout the free educational course so far, but it’s time we actually have a specific section dedicated to it!
1. 24/5 vs. 7/5
The Forex Market is open 24 hours a day, 5 days a week, whereas the Stock Market is open anywhere between 6.5 to 8 hours a day, 5 days a week (The Stock Market has after-hours trading even though volume tends to slow down after a certain time).
2. Customizing Your Own Schedule vs. Trading Within Specific Times
Even if you trade at a specific time every day or every few days, you still have the ability to customize your own schedule in Forex. It can be 4am. It can be 8am. It can be 6pm. It can be midnight. Having that flexibility goes a long way with traders, giving them the reassurance that they can still work at their regular jobs and trade before work-hours or even after-work hours. It’s completely up to you. With the Stock Market, the bell rings at 9:30am – that’s when trades start accumulating, forcing the overall volume up. You have to figure out a schedule that works with you trying to simultaneously trade the Stock Market at 9:30am and make it to the job you have (which can happen).
3. The Ability to Short-Sell
With the Forex Market, you can buy or sell ANYTHING you want. I’ve seen a lot of people confused about this, but the reality is, you don’t OWN anything in the Forex Market! You don’t own any shares like you would investing in the Stock Market or trading specific companies in the Stock Market… you’re simply predicting if one currency value/country’s economy will be stronger than the other. THAT’S IT! So if you think Great Britain’s economy will weaken in comparison to the United States, you would simply open up a GBP/USD chart and click “sell.” You do NOT have to click “buy” first, which is another factor that makes the Forex Market so attractive. You have an equal amount of opportunity to buy or sell ANY currency pair at ANY moment in time.
With the Stock Market, there are short-sell restrictions. This means traders are restricted on selling in the Stock Market to prevent too much volatility in a downward market. Remember, you’re dealing with actual companies such as Netflix, Apple, Disney, GAMESTOP, and others in the Stock Market. In the Forex Market, you’re dealing with currencies. The Forex market is sometimes also known as a free-floating exchange, which means currency prices can rise and fall freely. There will always be an opportunity in the Forex Market (this can come with more temptation than the Stock Market can which can be detrimental).
4. LIQUIDITY (Liquid Assets Available), VOLATILITY, and LEVERAGE
As we talked about before, the volume traded per day in the Forex Market is around 6 trillion. What you should remember about liquidity is that the MORE traders there are, the more money there is floating around the market, making it extremely liquid! The more liquid the market is, the more controlled the market is.
The Stock Market isn’t as liquid as the Forex Market due to the fact that its trading volume per day is a fraction of the Forex Market, but there are still active traders who are continuing to keep the market liquid when the market is open. This can be beneficial to the Stock Market because even though EVERY market fluctuates, no market fluctuates as heavily as the Forex Market, and that can work against you. Because of volatility, you can’t always look at the endless opportunities. Take into consideration the increased risk if you do not act carefully!
Liquidity goes hand in hand with volatility. It may sound counterproductive, but when there’s more money floating around in the market and more traders TRADING, prices won’t fly UP and DOWN and UP and DOWN, making it super confusing to participate in a trade. When there are less people in the market and less money floating around, the market is extremely volatile because there’s not enough liquidity available. However, people are still trying to trade.
Leverage allows you to trade in the market with more than what you physically have in your account. Essentially, you’re borrowing capital to trade. With leverage, brokers in the currency market will allow you to trade with a leverage as high as 1:100 (regulated), or even 1:500 (unregulated). What that means is for every $1 you have, you can trade up to 100/500x! Don’t get too excited though because this can be a double-edged sword. You may be able to make a lot more money on leverage, but you also are exposing yourself to lose a lot more too!
With the Stock Market, although brokers set their own rules when it comes to leverage, the Federal Reserve created Regulation T, which means you’re only able to borrow up to 50% of the value of your position/the stock’s purchase price. For example: You can’t borrow more than $2,500 to trade $5,000 worth of stocks.
The ease at which you can open up a trading account with a brokerage, deposit some money, and start trading is unmatched. With the Stock Market, the minimum amount you can trade with is $25,000, or else you’re subject to the PDT Rule (you can only place 3 trades within a 5 day span). And remember, that’s the MINIMUM. If you fall $1 under $25,000 and only have $24,999 in your account, you can only trade 3 times per week. But with the Forex Market, you can open an account with as little as $100 and start as MANY times as you want today!
*** This is not to say that you should deposit $100 or trade as many times as you want; I’m just giving an example on the ease at which the Forex Market can be traded and accessed. ***
6. PAIRS/STOCKS to Choose From
The craziest thing about trading in the Stock Market and trading in the currency market is that there are over 3300+ stocks listed on the NASDAQ. Figuring out which company you want to trade with can be a daunting experience as there are so many stock options. Although there are over 100 currency pairs, there are only 7 MAJOR currency pairs that are the most traded pairs in the world, that most people tend to stick to. It’s a lot easier to remember a few pairs of stocks than a thousand.
When it comes to influences, there are pros and cons to both markets. The pro to the Forex Market and the con to the Stock Market is that companies can actually manipulate a part of the stock market by publicly coming out and stating that they’re buying x, y, & z or selling their shares of x, y, & z. You’ve seen analysts do it on TV all the time or stocks rally off of pure hype and people on Twitter talking about it. That won’t happen in the Forex Market.
What moves price in the Forex Market is government policies (fundamental analysis) or price repeating what it did in the past (technical analysis).
The pro of the Stock Market and the con to the Forex Market is that when you’re focusing on the Stock Market, you just need to focus on the company’s earnings, the sentiment regarding them on social media, what their CEO is publicly saying, and other factors that directly influence that particular company.
With the Forex Market, it’s a little more complex. You have to focus on EVERYTHING with that particular COUNTRY (not company… COUNTRY). Factors such as: inflation, monetary policy/interest rates, unemployment, wars, their central bank, and more. OH, you also have to study two countries at the same time because you’re comparing one against the other 😅 SOUNDS TIME CONSUMING. I understand 🥴
Overall, these are the main differences between trading in the Stock Market and the Forex Market! Do you see now why most young adults choose to learn how to trade Forex over stocks? After weighing both options, you can see that Forex has an easy barrier for entry. Additionally, you can get started right away with no cap on how much you can trade per week!
*More trading also doesn’t mean more money or a better situation. It 100% depends on the trader.*