In a day and age where there are more opportunities than ever before for us to trade from our smartphones, it’s no surprise that people diversify. By and large, there are two main strands to trading in the modern age. One focuses on trading in stocks and shares, while the other focuses on trading in pairs on the foreign exchange. The latter is known as forex, and while lucrative, many see forex trading as fairly intense.
However, that’s not to say that one style of trading has anything over the other. As mentioned, people are keen to diversify in the modern age. Many stock traders choose to get into forex occasionally, and the same can happen vice versa.
That said, there are more than a few things that traders will need to consider as there are major differences between the two types. Is forex right for you, or do you stand to make more through your style of trading on the stock market? Time to have a quick look at what separates stocks and forex.
Understanding volatility and focus
It’s important to understand that markets are volatile. When it comes to stocks and shares, company reputations can send traders either jumping for joy, or crying into their phones. Many also find the stock market to be a great long-term pursuit. With robo advisors and automated trading apps now being the norm, it’s clear that many people want to invest passively over a long period. The stock market has a broad approach and will therefore appeal to anyone looking at the long-term process.
Forex, however, can be more volatile – arguably – and its scope is much narrower. Forex revolves purely around currency valuations. As you can imagine, global and political movements and events from day to day can change strengths and weaknesses over the space of a week – even within a day’s window. Forex is likely to dip and spike – regardless of the pairing you choose – at any time.
What’s more, the narrow scope means you are unlikely to make big gains long term unless you have a firm strategy in place. It is not impossible, but forex trading tends to favor those who scalp, or who look to buy and sell every single day.
Anyone interested in getting started in forex should do some background reading and research. For example, we’d encourage you to consider Plus500 account types before signing up for real. LeapRate, in fact, is a great resource for forex newbies and those who have been in the game a little longer.
Forex sometimes has a reputation for being intense. This is somewhat earned – though that doesn’t mean it isn’t worthwhile. Much of this reputation arises from the narrower focus, but it also arises from the length of time the forex trading windows are open.
This is a key distinction between forex and stock markets, as it can greatly separate interests. Forex market trading is open 24 hours a day, five days a week. That means anyone getting into forex will need to keep a close eye on their investments across the entirety of a working week, regardless of time zones and opening hours.
Stock markets, meanwhile, trade on an eight-hour basis. That means they are open during working hours. The investment opportunities are less intense, and this model favors those traders who are looking at the bigger picture long term.
Again, this doesn’t always mean that the stock trading approach will guide you towards guaranteed success. Many stock traders find themselves frustrated with the process and the lack of small, instant wins. Therefore, many drift towards forex for the chance to claim regular income, albeit with volatility and an increase in pressure.
Another key reason for traders switching from stocks to forex lies in the sheer volume of capital being traded from day to day. Ultimately, forex handles more money than stocks – for the obvious reason that you are handling international currencies, not smaller company stocks. The difference here is pretty stark.
With stock markets, you can expect to trade in a marketplace worth around $150 – $200bn on a regular day. With forex trading – brace yourself – you are considering trading in a marketplace worth $5trn. That’s daily!
Therefore, those traders looking for big money, frequently, are likely to look closely at forex. For many people, the volatility and intense experience is worth the payoff. It’s easy to see why – but, again, there are never any guarantees.
Despite the lower volume, many traders prefer the stock market because it tends to be a little more predictable. What’s more, it is arguably easier to set up a passive trading plan via stocks than it is via forex, and to make big money in the long run.
Should stock traders switch to forex?
There is no clear answer to this question – crucially, it is all about making money, and considering your own approach to risk and volatility. When do you want to make money? The answer most of us will say is ‘now’ – but when it comes with demanding trading and the chance to lose it all greatly enhanced, is this still a risk you want to take?
That said, there is the chance to make more money, more frequently via forex. Stocks are ideal if you have a long-term plan in mind, and if you’re keen to get AI apps to passively buy and sell over a longer process. The choice is yours!
As for which is ‘better’ – that, again, is a question without a firm answer. Traders have made fortunes on both forex and stocks. Traders have lost fortunes, too. Our advice to newbie traders is to consider their investment styles and financial needs, and to consider the virtues and pitfalls of either approach.
Thankfully, it’s getting easier and easier to trade in both forex and stocks – take your time to research!