Financial markets refers to any marketplace where the trading of assets occurs, including the stock market, bond market, forex market, and derivatives market, among others. On today’s blog we will discuss mainly the forex and stock market, and examine some of their similarities and differences.
The reason we focus on these two is their high correlation and preference by traders to each other and equally because (read keenly here) – Forex is our business.
Firstly, let us get out of the way that both the Forex Market and Stock Market are part of the global financial markets and secondly that the forex market involves the buying and selling of foreign currencies while the stock market involves the buying and selling of stock – (a representation of ownership of a fraction of a company).
Now on to the main items, let’s examine some similarities of the forex and stock market. Stocks and the forex markets are both speculative assets that come with high risk and high rewards, also they are markets influenced by the forces of Supply and demand and they are both leveraged however the forex market happens to be the highly leveraged market.
Differences between the forex market and stock market
Market operation hours
The forex market operates on a 24 hour basis for 5 days a week, while the stock market hours of operation are limited to market open and close, which are regulated by different securities exchange. On average the stock market hours open between 9:00am to 4:00pm, giving at least 8 hours of market time. This difference in hours of operation offers a competitive advantage to the clients who are seeking to participate in the markets.
Volume of tradable assets
The Forex market volume in the financial markets is currently estimated at $6.6 Trillion per day with the most trading concentrated on a few major pairs i.e EUR/USD, USD/JPY, GBP/USD and AUD/USD. However, the Forex Market happens to tramps the size of all the Stock markets in the world combined which adds up to $ 200 Billion per day. Equally the Forex Market volume happens to be bigger compared to all the financial markets combined too. This therefore means that it is also the most liquid market to all of the others.
Forex market participants are charged minimal to no commission by the participating Forex Brokers for engaging in the market which is unlike the stock market where the traders have to pay the spread plus a commission to buy and sell of any stock to the brokerage.
Rewards and Benefits
Traders participating in the Forex market do not carry any non-monetary rewards and benefits unlike the Stock market where those who buy the stock of a company are entitled to other rewards both monetary and non-monetary such as dividends, corporate governance privileges and voting rights. Therefore, the biggest shareholders of a stock get a chance to have voting rights in the board of management of the said company stock.
The Stock market of different exchanges are regulated by different bodies in their countries of operations, these are rules and regulations that are meant to protect the consumer and investors against loss of their money among other regulations such as; ceiling cap that investors/brokers can participate in the market and to ensure fair corporate governance. The Forex market however has no central regulation to govern its operations.
Which one should you trade?
As a trader you have to meticulously evaluate the pros and cons of both the stock market, as well as the pros and cons of the forex market in order make a decision of which financial market to participate in. Factors you can consider while making a decision could be; the marketing operation hours, leverage, market regulation, rewards and benefits, amount of capital required to participate, commission fees, control over portfolio, and liquidity of market.
Having settled on a decision, you can take the necessary steps to get started.