What is the largest distinction between forex and the stock market? What you are trading. In forex trading, you trade currencies; whilst in the stock market, you deal with shares. As a trader, you call regarding whether to trade currencies or shares ought to be supported by your interest and other factors to consider about. The top differences between forex and stock markets are in areas such as the volume of trading, liquidity and volatility, hours of trading, market influences, commissions, and focus.
First of all, we are going to look at the volume of trading in both these markets. Forex is calculated to trade around $5 trillion on a daily basis, with most trading focused on a number of major pairs like EUR/USD, USD/JPY, and GBP/USD. The forex market trumps the stock market based on the volume of trading whereby the turnover of all world’s stock markets combined are roughly estimated at $200 billion per day (see top forex broker indonesia for more information). The high volume of trading in the forex market also means that traders will get their orders executed a lot simpler and nearer to the price they desire.
The liquidity of the market is determined by how easily an asset is bought or sold. It is a vital consideration as a result of the high volume of traders, which also means that there is more money flowing through the market. Forex is the largest and hottest money market in the world due to its liquidity which leads to tighter spreads and lower transaction costs. Despite being less liquid compared to the forex market, the stock market is also still straightforward in terms of access. Large and popular stocks such as Apple, Microsoft or Facebook – are the most liquid stocks as there are a large number of buyers and sellers trading these stocks.
The volatility of a market is influenced by how seemingly a market price can cause major fluctuations. A market with high volatility can see quick changes in prices as compared to the gradual price changes in a market with low volatility. Due to the ease of trading in the forex market within a small range, the volatility is extremely high. The market is also susceptible to sudden events in the sector of economy, politics and social events. The stock market, however, is more stable in its price patterns but not immune to political events just like the forex market.
The hours of trading in the forex market is 24 hours per day as it involves currencies all over the world whereas the hours of trading in the stock market is 8 hours per day, depending on which stock exchange you’re trading on. The opening hours of a market will influence your trading habits as it will influence the time spent on monitoring the markets. As for what traders need to focus on while trading on both these markets, the forex market has a narrow focus compared to the wider range of options available on the stock market. This is because there are only eight major currencies to focus on as compared to the thousands of stocks in the stock market.