To some, it might be obvious that there are differences between forex trading and stock trading, but to others, specifically beginners, it might not be. Most probably understand the basic differences, for example, that forex trading involves currencies and stock trading involves stocks, but there is more to it than that.
So, in order to clear things up, we thought we’d get into the differences between trading forex and trading stocks.
Note that it’s important for beginners to know what sets the two markets apart before you start trading so that you can pick the one that suits you best. In fact, deciding which market you will focus on is one of the most important decisions you’ll make, and it will have a major impact on the rest of your trading experience.
Fundamentals and Tactics
As mentioned, there are some fundamental differences between the stock and forex market. For example, stocks were originally designed for long-term investments while currencies are best suited for day or swing trading. Currencies and stocks are also very different instruments based on completely separate foundations. This means that the prices are affected and controlled by different forces and that you have to adapt your tactics accordingly.
We’ll go into more details about which tactics and analytical strategies are best suited for the two markets further down.
Tools and Platforms
One of the main differences between stocks and forex is how they are traded.
While stocks, in most cases, offer more opportunities and services, forex trading is limited to a certain type of brokers.
For example, stocks can often be traded using stock brokers, state of the art stock trading apps, banks, and a range of other services offering investment and trading opportunities. Currencies, on the other hand, are traditionally limited to forex brokers online.
With that being said, both markets have been blessed with some of the best trading companies in the world, and there is no shortage of state of the art trading platforms for both stocks and forex.
Also, stocks can be traded as derivatives such as CFDs, and many of the leading forex brokers offer CFDs, meaning you can sometimes trade stocks and forex on the same platform.
As mentioned earlier, stocks and currencies are affected by different factors which means you as a trader have to adapt your tactics accordingly. As you probably know, there are two main ways of analyzing an instrument, either through fundamental analysis or technical analysis. Fundamental analysis focuses on real-life events such as news stories, company reports, criminal charges, disasters, etc. and technical analysis is based on price development, trends, and previous market patterns.
Generally speaking, a stock is somewhat better suited for and more sensitive to the characteristics of a fundamental analysis than a currency. While a currency, in some cases, can be easier to trade using technical analysis.
With that being said, both types of analysis could and should be used for both markets. It’s just really important that you understand the differences.
Which Instrument is Better?
Now to the million dollar question. Is stock trading better than forex trading or vice versa?
Well, there is no definite answer to that question, and in the end, it’s a personal choice. Some people prefer trading stocks because of the unique characteristics of the stock market and some traders prefer forex. That’s just how it is, and it’s up to you to make a decision regarding what you want to trade.
And remember that this is not an all or nothing decision and it’s perfectly fine to trade both stocks and forex if you feel like you can handle it. However, we do suggest that beginners start by mastering one market at a time to avoid being overwhelmed.
It is of the utmost importance that all traders understand the markets they trade on because without that basic knowledge, it’s more or less impossible to succeed. At the same time, it’s also important to understand what sets markets apart, and hopefully, we helped clear some of those differences up in this post.