Stocks vs Forex
What’s the difference between trading individual stock and forex trading?
Your trading plan
Forex trading is suitable for day traders that prefer to take risks for chances of quick returns due to its high volatility. This market is appropriate for traders who are looking to make a number of short term trades where they will rely on their ability in day trading currency and managing risks to gain significant profit. Though long term trading is available, most traders in this market opt for spotting patterns in price history and capitalizing accordingly.
Stock trading is usually characterized by long term buy and hold investments, where you pick the stock you wish to invest on through researching a company’s quantitative data like balance sheets or even brand reputation.
Degree of leverage
The forex market CFD and spread betting providers can offer high leverages due to the immense trading volume in the market compared to stock trading.
You can leverage your trades 1:100, meaning your $1,000 allows you to hold $100,000 capital investment. The potential to earn large amounts of profit from your small investment capital is high but is directly corresponding to the high amount of risk involved which could lead to massive loss if not careful.
Freedom of choice
Your choice depends largely on what you want – sifting through thousands of stocks for trading opportunities, or focus on a handful of markets that yield significant activity.
The forex market consists of a short list of major forex pairs and a modest list of minor pairs where traders focus their attention on only the pairs that are heavily traded.
The stock market offers thousands of individual stocks to choose from and to trade across the globe.
One advantage of the forex market however is that it is open 24 hours a day, globally, meaning you can trade anytime during the trading week; whereas the stock market is limited by the trading hours in a day.
The forex market is so expansive that no single individual can create a significant impact as compared to trading individual stocks.
Unlike in stocks where if a single large institute buys a large amount of asset it can significantly impact the prices, the forex market can’t be monopolized by player no matter how big they are.