When people decide to become traders they do not realize that it is going to be a hard choice. What to trade: currencies or shares? Where to trade: in Forex or in the stock market?

You should study both markets in detail to make the right choice and start yielding profits.

Forex market

The forex (foreign exchange) market is a global trading floor for exchanging currency against each other. Traders earn money on the difference in buy and sell quotes. The most popular currency pair traded in the forex market is EUR/USD. When the value of currencies in the quote changes, the price of the currency pair changes as well, and traders make a profit from the difference in rates.

Stock market

The stock market is a global marketplace for trading securities such as stocks, bonds and futures. Meanwhile, a stock exchange is a market in which securities are bought and sold. The stock market is of particular interest to private investors (traders). Their profit in the stock market is determined by the difference between the cost of buying and selling securities, as well as dividend payments.

Forex and stock market trading: how does it work?

The most important thing for novice traders to remember is that the value of currencies constantly changes.

The price of one currency expressed in terms of another currency is called a quote. Each quote is reflected on the chart. An online price chart is formed when one such mark is connected to the previous one. Using a computer or smartphone, traders monitor chart changes in order to choose the perfect time for entering the market.

The use of leverage is beneficial in such a case. At the moment a trade is opened, the intermediary company (broker) adds additional money to the trader’s personal funds. The size of leverage varies. Some Forex Brokers offer a 1:1 leverage ratio, and their clients have to trade using only their own money. Other brokers strive to support their clients as much as possible. For example, InstaForex offers its clients leverage of up to 1:1,000, that is it adds $1,000 to each dollar of the trader.

The main function of the stock market is to maintain cash flows among various economic sectors. That is, companies, private investors, or investment funds that have spare funds purchase shares of a particular company. Stock exchanges were created to speed up the process of finding sellers and buyers. They ensure the functioning of the market and accelerate the process of investing in shares of multiple companies at market prices.

To earn money in the stock market, the trader should find a reliable broker and select the best trading platform. After that, the trader should open a trading account with the broker to store funds. You can find step-by-step instructions on how to open an account on the InstaForex website.

The broker does not have access to traders' funds and cannot use them to pay off its own debt obligations.

Main differences between Forex and the stock market

There are many differences between these markets. We are going to highlight only the main 3:

  • Traders’ goals

Choosing to trade in Forex, traders strive to make a profit instantly. Practically no one invests in the forex market in the long term. Traders mostly use fluctuations of a different scale to earn money. Therefore, a closed buy trade is often followed by a new sell trade. Both small market participants and large banks employ this strategy.

As for the stock market, shares are purchased to invest in economic sectors. Each company listed on the stock exchange is a large organization that plays an important role in the economy. One of the main differences between the forex market and the stock market is in the interests of their participants. In the foreign exchange market, this is pure speculation, while in the stock market, it is investing.

  • Price movement

The turnover of the forex market is many times higher than the turnover of the stock market. That is why price movements there differ considerably. Securities usually move slowly during non-reporting periods, which happens only a few times a year. Meanwhile, almost every publication affects the value of currencies, which happens several times a day. Sometimes, analysts help to assume the future price movement in the forex market for the short and long term. However, any global news and events often trigger completely unreasonable and unpredictable price movements.

Traders who prefer to make instant profit choose short-term trading in Forex. Meanwhile, those who go for long-term trading and stable profits usually invest in securities.

Regulation

The key difference between the forex and stock market is in the level of control. Forex is not regulated and is completely decentralized, which gives plenty of opportunities for all kinds of fraudulent activities. Brokers are often registered in offshore zones, where local legislation is more loyal to them. At the same time, intermediary firms that provide traders with access to stock exchanges are often licensed by the state. Such brokers are controlled by various regulatory authorities. For example, if a broker violates some rules, it will be fined and punished.

Some brokers offer their clients deposit insurance. In such a case, it does not matter what market the broker operates in – Forex or the stock market. Traders’ deposits will be insured.

Summary

It is up to where to trade – in the forex or stock market.

However,

  • If you are interested in certain companies, the way they operate, and their financial success, you should focus on stock trading.
  • If you are especially keen on macroeconomics, take a closer look at the forex market.
  • If you do not have definite preferences but prioritize transaction costs, then opt for Forex.

Before making a final decision, we suggest re-reading this article and carefully examining the key differences between two equally attractive markets. Good luck with trading!