Have you ever wondered what the difference between Forex and stock trading is? You may have thought about investing in the financial markets before, but choosing the right market to invest in is not an easy matter. Selecting the market in which you want to invest your money is very important.
Because knowing enough information about the market and the factors affecting it and whether this market is suitable for investment or not, all of these factors determine whether your money is in safe hands or not, because in the event of making a wrong decision, you will bear the loss of your money or at least part of it.
The key difference between the Forex market & Stock market
1 – What is Forex Trading?
Forex is the trading of foreign currencies and this trading is done through buying and selling currency pairs through a broker. For example, if you want to open a buy order on the EUR/USD pair, you must first open an account with a broker so that it can be the means to help you carry out these transactions by providing a trading platform through which you can choose the appropriate currency pairs and then trade on them.
The broker also offers you many services in addition to the trading platform, including leverage, bonuses, no deposit bonuses, technical support, etc.
Forex trading is one of the most popular financial markets because anyone can trade Forex. You can simply create a new account easily through the broker and then deposit any amount you want starting from $1 and then trade Forex. But of course, it requires learning the market first before depositing money.
Trading Hours
Trading Hours
The Forex market works throughout the week except for Saturday and Sunday which are holidays. There is no difference in knowing the trading sessions if you want to buy and sell a currency because you can open any order you want as long as the market is open. However, the trading sessions may benefit you in the strength of the market movement whether there is enough momentum to move the market or not.
For example, at the time of the opening of the London Stock Exchange, you will find that there is a large amount of liquidity pumped into the market suddenly, because the London Stock Exchange is one of the important sessions that pumps a large amount of liquidity into the market, and thus the market moves strongly with it. Also, at the time of the opening of the New York Stock Exchange, you will notice greater liquidity at this time.
Because at this time there is an overlap between the London and New York Stock Exchanges together, and this gives a strong boost to the market at this time.
2 – What is the Stock market?
The stock market is a market in which you buy and sell shares of companies such as Google, Apple, Microsoft, etc. When you buy these shares, you will be a partner in the company whose shares you bought, and the higher the percentage of shares you buy, the higher your percentage of profits.
The stock market is a bit different from Forex because in the past if you wanted to buy shares you had to go to the stock exchange and buy shares from there or call your broker over the phone and he would purchase shares on your behalf but now things have developed a lot where you can buy and sell shares through the internet with ease.
In the past, there were also no sell orders, but short positions were added to allow traders to sell shares they do not own. For example, if you see that Apple shares are going to fall, but you do not own any Apple shares to sell, you can open sell orders through your broker. Through this process, the broker lends you shares to sell. When these sell orders are closed, you must buy them again, but at the closing price, If the closing price is lower than the level at which you sold, you will make a profit, and vice versa. If the stock rises, you will have to buy these shares at a price higher than the selling price.
Trading Hours
The trading hours for the stock market are a little different from Forex. If you want to buy a Microsoft share, for example, you must wait for the opening of the NASDAQ stock exchange to buy this share. You cannot buy this share from any other exchange because the share is listed specifically with NASDAQ.
If the NASDAQ Stock Exchange is closed, you will not be able to buy or sell the stock, but there are some exceptions. There are brokers through which you can buy and sell stocks at times other than the official trading hours, These brokers have a feature called Pre-Market and After-Hours Trading, which allows traders to trade as usual as if the NASDAQ was open.
Therefore, before you intend to buy or sell a stock, you must first know the stock exchange on which this stock is listed, and then know the opening and closing times of this stock exchange so that you can decide to buy and sell at the appropriate time (in case your broker does not support the Pre-Market and After-Hours Trading feature).
3 – How to make profits in Both markets?
How to make profits in Both markets
Forex market
Making a profit in Forex is through buying and selling currencies. If you buy a currency pair and this currency rises, you will make a profit, and the opposite is true if it falls, you will lose of course. You can make profits through referrals as well. If you are good at marketing, you can advertise your broker and you will get a percentage of the profits from each lot that the trader opens. This can be a side way to make a profit for you.
There is another way also if you see yourself as good at trading you can invite traders to copy the trades you open or you can create an investment portfolio where traders deposit the money into your portfolio and thus you get a percentage of the profits from every trade.
It is also possible to make profits in Forex by participating in demo competitions. Some brokers hold weekly and monthly competitions. Through these competitions, you can make profits if you are among the leaders in profits.
Stock market
In the stock market, you can make profits by buying stocks, bonds, or indices. If the stock value rises, you will certainly profit, and the opposite is true in the event of a decline. However, you can also sell stocks that you do not own, as we mentioned previously, through short positions.
Distribution of profits
There is an advantage in the stock market that you will not find in the Forex market, which is the distribution of profits. If you buy a certain share and keep it for the period of the dividend distribution, you will receive a portion of the company’s profits, and these profits depend on the number of shares you bought.
Dividend distribution varies from one company to another. Some companies distribute their profits in the middle of the year, the beginning of the year, or the end of the year. You must first know the date of dividend distribution for each company and also know the Ex-Dividend Date because this is the date that is determined to determine the shareholders eligible to receive dividends. If you buy shares on or after this date, you will not be eligible to receive the last dividends. You must be registered as a shareholder before this date to receive dividends.
There are other dates that you should also know, including the Declaration Date, which is the day on which the company announces its intention to pay dividends, including the amount of the distribution and the payment date.
Payment Date is the day on which the dividend is paid to eligible shareholders
Record Date is the day on which the list of eligible shareholders to receive the dividend is determined. You must be registered as a shareholder on this date to be eligible for the distribution
The company distributes profits to investors if they do not sell the shares they bought to encourage investors to keep these shares so that the company grows more and more, but some emerging companies do not distribute these profits and reinvest these profits in the company again, and this is done with the knowledge of the investors, of course.
4 – Factors affecting both markets
Factors affecting both markets
What are the factors that may affect the Forex market and the stock market? Of course, many factors may cause the price to rise or fall Therefore, you will notice that in both markets there is a strong rise and a strong fall, and sometimes there is a sideways movement. It is important to know what these factors are that may affect both markets to make an appropriate decision to sell or buy.
1 – News
News is one of the most important factors that strongly affect the Forex market and Stock market. The impact of this news is divided into three types: weak, medium, and strong. Strong news is the one that greatly affects the movement of pairs & Shares, and the impact of this news may last for more than a month.
Some of these news are interest rates, unemployment rates, NFP (Non-farm Payrolls), and inflation rates, When such news is released, you will notice the market moving strongly.
2 – Supply & Demand
Supply and demand are the main factors that move both markets. If the volume of lots purchased by buyers on the EUR/USD pair is greater than that of sellers, the pair will rise. The opposite is true if sellers are dominant, as trading volume is the main factor in price movement. However, this ratio can be ignored in the event of news, as strong news dominates the market regardless of the dominant force, whether buyers or sellers.
What is meant by controlling the market here is not you and me, but the market makers. We are considered the small traders in this market, and the market makers are the real power that moves the market up and down. The market makers are the large companies, hedge funds, banks, etc.
The same applies to the stock market, but the trading volume is much lower because the Forex market trades approximately $9 trillion daily, so you will find it difficult for this market to be controlled by retail traders, unlike the stock market, where supply and demand from companies will be strongly affected if a small amount of liquidity is pumped into the market.
3 – Economic crises
Economic crises can have a significant impact on the Forex market because, in the event of an economic crisis, there is a state of panic among traders, especially if this crisis has a significant impact on the country’s economy. There are many questions about whether the country will be able to treat this crisis or not, traders may resort to safe havens in the event of economic crises, such as gold, silver, and the Japanese yen.
Almost the same thing happens For stocks. Economic crises make investors sell stocks for fear of a sudden decline in global stock exchanges. Investors also resort to safe assets such as gold and silver. It is possible to diversify investments in the event of not wanting to exit the market and sell stocks.
4 – Natural disasters
If natural disasters do not directly affect the country’s economy and do not cause much damage to buildings and facilities, you will not find the market affected by them. It is natural for such disasters to occur from time to time, but if a major disaster such as a tsunami occurs, such events greatly affect the economy, and for the country to recover from them, it will need a long time.
In this case, investors will flee this country because there is no opportunity to invest in the presence of such a disaster, and the country’s economy will gradually decline, but this does not mean that this country will die. If the problem is treated quickly and the country’s stability is restored, the stock exchanges will return to work again and the currency’s strength will return to what it was.
5 – Advantages and disadvantages
Advantages and disadvantages
The Forex market and the stock market have advantages and disadvantages, so it is natural for some traders to prefer the Forex market over the stock market and vice versa.
Liquidity and manipulation
The Forex market is characterized by the large liquidity that is pumped daily in the amount of 9 trillion dollars, which makes it one of the largest global markets in terms of trading volume. This amount of money makes manipulation of the market very difficult, unlike the stock market, which is affected by the least possible liquidity, and rumors also affect the stock market greatly.
Rumors that occur in the stock market can greatly affect the stock price, and cause a state of panic among traders to sell shares for fear of a decline in the stock value, and this of course affects the market and the stock value, unlike Forex market, If you want to control the Forex market, you need a huge amount of liquidity to push prices up or down.
Risks
When we talk about financial markets, we are talking about the risks that such investments entail. Both markets have risks, but we can say that the Forex market is the riskiest because, in the Forex market, you can literally lose all your money in one moment.
For example, if you decided to deposit $100 in the Forex market and wanted to buy EUR/USD with 1lot and the account leverage is 1:3000, in this case, if the pair fell by just 10 pips you would lose all your money and this could happen in less than a minute (But the opposite is true if the pair goes up)
But there are some tools that you can use to limit these risks. There is Risk management that will help you manage your money correctly and choose the appropriate leverage and lot. The real reason for losing in Forex is wrong decisions because the Forex market is one of the markets that makes it easy for you to open a large number of orders with a large lot size. Because of this ease, traders exploit this feature incorrectly and therefore they lose constantly.
This is because they are hoping for the big profit that they can get by risking a small amount of money (or even all their money) and opening a large number of lots. In fact, you can consider this an advantage if you know how to exploit such tools well, and a disadvantage If you think that Forex is a big treasure that you can get what you want with all this simplicity and get out of it, the matter requires learning and practice to understand this market.
As for the stock market, there are not many risks because it is considered a somewhat safe market because you buy a share of the company’s Stocks and become an investor and partner in the company as well. If the share price falls, you can sell the shares that you own quite simply because in this case you own a share and did not buy a currency.
There are also annual profits that the company gives to investors. Such advantages are very important because they encourage investors to keep the shares and not sell them. This is an additional profit for the trader, But of course, the stock market lacks the big risk in Forex because if the loss is small, the profit will also be small. If you are looking for a low-risk investment, the stock market may be suitable for you.
Deposit amount
The minimum deposit amount in Forex is $1, and Brokers accept many electronic banks that facilitate the deposit process for you, such as Perfect Money, Skrill, Binance, etc. You can deposit any amount you want, and the leverage will help you open the appropriate lot for you (Take a look at the broker’s deposit fees first before making a deposit)
However, the stock market differs somewhat in the deposit amount, as the deposit amount differs from one broker to another. Some brokers ask the trader to deposit an amount of at least $50 as a minimum deposit, but if you want to buy a specific stock and the price of this stock exceeds $50, you will deposit more money to be able to buy it.
There is a good feature that some brokers have. If the stock price is high, the broker can allow you to buy a portion of that stock, which is easy for retail traders to trade, Most brokers also accept most of the available payment methods such as Skrill, Binance, etc.
Conclusion
Knowing the difference between the Forex market and the stock market is very important for any investor because there is a big difference between the two markets in terms of the risks that the trader may be exposed to, the amount of the deposit, and whether the market is suitable for the trader or not.
There is also a difference in the factors affecting both markets. The Forex market is difficult to manipulate by rumors and retail traders Due to the large liquidity that is pumped daily into the market, unlike the stock market Which has little liquidity compared to the Forex market, which can easily cause the stock price to fall or rise strongly at Rumor time. Such factors may greatly affect the trader’s investments.
