Which is better Forex or stock market? - key takeaways
Both of these financial markets have their advantages and disadvantages, but that doesn’t mean that it’s hard to choose.
Most beginners usually boil their choices down to the options below:
- Easier to predict
- Better chance at an increasing payout
- Chance of influencing the market
- Easier to start
- More stable
- Faster strategies
However, these preferences are usually very subjective. They don’t mean that if you find one financial market easy to use or familiar, the other one won’t meet the same requirements as well.
The most common strategy is to try both markets out first and then make a definitive decision.
FAQ on FX vs stocks
Why trade Forex instead of stocks?
Forex has clear advantages. One of them is leverage. Although stocks also have it, traders will usually be given around 1:5 leverage with stocks, while Forex traders can have somewhere around 1:1000 on some platforms.
This gives them the opportunity to deposit very little funds on their provider platform and trade as if they had 1000 as many resources available.
But, this doesn’t mean leverage is a very easy tool. It’s very risky and could do the opposite of generating more payouts.
Is Forex riskier than stocks?
Not necessarily. Usually, the risk is calculated based on the volatility of an asset. Considering that stocks have higher volatility, more traders would agree that stocks are riskier. However, it all depends on the strategies and the mentality you use when entering either of these markets.
If you go in with no knowledge, experience, or tools, it’s very likely that you will lose much more than you win.
Therefore, don’t think that just because one asset is riskier than the other, you’ll be safe with the less risky one. No matter how we look at it, financial markets are a very hard thing to navigate, and usually result in a loss rather than a win.
Why are stocks more familiar than Forex?
Knowledge is something which is the difference between Forex and stock market and could lead to different results.
But stocks being more familiar is not necessarily true, but technically it can be justified. We all know what currencies are, right? Especially the ones we use on a daily basis. But we don’t necessarily know all the details of what affects their exchange rate. It could be the economy, or it could be politics.
With stocks, it’s much simpler to understand. Did the company you’re investing in grow last year? Well, that means that this year they are going to try extra hard to beat last year’s results. This usually gives traders an idea that the company is going to grow even more and they tend to buy at this point.
But let’s try a different perspective. Let’s imagine that you really like Japanese cars and invest in a company like Toyota. You know exactly how people react to new models because you are one of their customers.
But, you soon find out that several countries will be banning cars that have steering wheels on the right side. This means that fewer countries will import Toyota cars, so fewer of them will be sold. This usually means that the stock price is going to drop for Toyota, because traders think they will have fewer sales in the future, thus avoiding losses early on.
Why do stock brokers require larger minimum deposits?
The difference between Forex and stock brokers is that they perceive their customers differently. For example, a Forex broker sees its customers as traders, while a stock broker sees them as investors.
The Forex broker knows that its customers will have a lot of trades within the day, so they’re okay with allowing smaller deposits because commission fees are much more frequent.
As for stock brokers, they know that their customers will make a trade maybe once a month, therefore they have to request larger deposits so that their commission fees are a bit bigger.
I’ve been trading Forex for a while now, will it be hard to switch to stocks?
Technically, it’s not hard. However, you will have to adjust to the new volatility. Stocks change prices much more often than currencies. Because of this, most traders tend to have a long-term strategy rather than a short-term one.
Plus, rearranging the sources you get your information from could also be a requirement. Because websites or experts that talk about currencies, don’t necessarily dedicate that much time to industries and the economy.
It will also be hard to let go of the advantages of FX trading over stocks too quickly. Most traders still apply their Forex strategies to stock trading and end up losing a bit in the beginning. This is natural, traders get adjusted to their new patterns as they go.
Should I only trade local assets?
It’s definitely not a requirement, but people who trade only local assets exclusively, tend to be a bit more successful than those who trade internationally.
The reasons behind it are that local politics usually have a lot to do with stock prices as well as currency exchange rates. If a trader understands the complex political situation of a country, he or she is much more likely to predict future policies or what those policies could cause.
It’s not recommended to trade local assets exclusively though, as every expert trader tends to diversify their portfolio.
But when it comes to stocks vs Forex, both markets have the option to keep you on only local assets exclusively.
Which one will teach me the most about financial markets?
Both Forex and stocks have quite a lot to offer in terms of market knowledge, but they also can teach about politics, economics, finances, and general issues that can be found in the world.
For example, when trading Forex, most people tend to look for political news rather than news from separate companies. For example, Brexit. Every trader was very conservative about making risky trades while Brexit was still being debated, but now that it’s pretty much-guaranteed traders are a lot more open to risk.
By trading Forex, it’s very likely that you as a trader will find out quite a lot about politics.
As for stocks, traders tend to seek information about the particular industry they invest in. This helps them learn about economics as well as politics. It sometimes teaches traders how or how not to run companies based on the stock price changes.
All in all Forex vs stock trading in terms of education is pretty tied as they both provide very important knowledge.