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Investing In Stocks Vs. Forex – All That You Need To Know

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Investors today have easy access to a wide variety of financial instruments, with foreign exchange and stocks topping the popularity chart. However, when it comes to picking one among these two, investors often find themselves baffled. 

While blue-chip stocks like AAPL stock forecast show excellent long-term investment gains, sharp price changes in the forex market offer a scope of handsome gains all in the same day! 

Which one should you choose and how long will you wait? There is so much to understand and balance involved in both forex and stock markets. Interestingly, the main things to consider here are your level of risk tolerance and the style of trading you aim to adopt.

In this post, let us focus on all that you should know about trading in stock and forex markets.

Trading in forex and trading in stock indexes

The foreign exchange market is the largest financial market in the world, witnessing an average traded value of at least $7 trillion per day. High flexibility in trading hours, excellent liquidity, and leverage are some of the most lucrative features of this industry. 

When it comes to comparing the forex market with stock market indexes, the three main differences to consider are –

  • Price fluctuations – The liquidity and volatility of stock indexes are favorable especially by those who engage in short trading. For instance, the top players in stock index futures trade at an average notion value each day, over and above the total traded fund volume of the basic 500 stocks. The daily average price fluctuations are ideal for delivering great profits in the short term. However, the average daily value of trading in stock indexes is far less when compared to that of the forex market. But you can enjoy perks such as liquidity, short-term average price movements for day trading, and options to carry out trade beyond regular US market sessions, in the forex market too.
  • Leverage – Just like forex traders can avail of significant amounts of leverage, futures traders can do the same. In the case of stock futures, this leverage is a compulsory fund deposit, known as ‘margin’ that is utilized by brokers in case of account losses. Margin requirements can vary from as little as 5 percent of the contract value to larger amounts prefixed by brokers. Similar to the forex market, here you can carry out trades in larger quantities with minimal investment. So both markets come with chances of making huge profits or severe losses out of small investments.
  • Market hours – When it comes to the forex trading market, traded volumes are generally similar at any point in time in the day or night. However, in the case of trading stock indexes, you can trade beyond regular session timings, but the traded volumes are usually much less compared to forex. Besides, liquidity can be an issue for off-market timings.

Also, read 20 Facts About Cryptocurrency That A New Investor Should Know

 

Trading in blue-chip stocks and forex trading

Blue-chips stocks belong to giant organizations that are financially stable and well-established. The advantage of investing in blue-chip stocks is their resilience to market challenges and track record of issuing dividends. These stocks are less volatile and are best for buy-and-hold investors.

While comparing blue-chip stock investment to forex investment on the same three aspects as before, we can say –

  • Price fluctuations – Blue-chip stocks generally do not show quick price movements in the short term, and are therefore preferred by those who want stable potential long-term gains. So these find less preference among short-term traders, who feel the forex market is more suited for rapid short-term gains.
  • Leverage – Leverage for US investors is available as 2:1 for stocks, and 50:1 for forex trading. So while leverage allows investors to build equity with minimum invested amounts, as low as $100, it can also destroy trading accounts without our realizing.
  • Market hours – Stock trading is confined to the regular market sessions only. However, forex trading can be carried out round the clock, which makes it easier for trading from anywhere in the world. This flexibility along with excellent liquidity at any time of the day is what makes the forex market favorable for both Asian and European countries. Traders get enough time for trading activities beyond their daily schedules. Penny stocks can also be traded after-hours.

Apart from these, there are various tax liabilities associated with forex and stock investments. You might want to get in touch with a qualified tax consultant to decide which financial instrument fits your investment portfolio in the best possible manner.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

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