The most apparent difference between the stock market and forex trading is that a trader buys a piece of the company itself with a stock. When investing in stocks, you are gaining ownership over pieces of companies.
When doing forex trading, you are simply exchanging one currency for another. Here, you buy US dollars (USD), then sell them back at a higher price to make money from your investment.
You can even do it in reverse – borrowing USD and selling them to buy Euros (EUR) when exchange rates favour that direction.
However, there is no underlying asset besides fluctuating prices on both currencies based on market factors like interest rate changes or trade sanctions.
While there are many benefits of stock market trading, the most obvious is buying shares in a company. You hope these companies will succeed, and your share price will go up, giving you capital to reinvest or take out as profit. You can even sell your stocks off to someone else down the line, which means you have passive income coming in every so often.
With forex trading, you are not buying an asset – it is essentially just betting on prices for currencies.
Regular forex trading vs Binary Options
Regular forex trading involves buying one currency with another for immediate delivery, holding it until the price increases enough to make a profit, then selling it where you bought it from or trading it again with another broker.
However, with Binary Options trading, you are essentially betting on whether the price of a currency will go up or down during one of two time periods. You choose which direction you think the price will go in, and if you are correct, you make a profit pegged to how much your prediction was.
Stock Trading vs Forex Trading – Which is better?
The best thing about forex trading, as opposed to stock trading, is that traders are not limited by how much they can deposit into their accounts. A person could deposit $100 or 10 Million dollars, and they would both hold equal value against currency pairs.
Traders wanting to invest smaller amounts of money might find this aspect particularly attractive because it allows them to try out more strategies than they otherwise would be able to if required a significant initial investment.
You only have so many shares with stock market trading, so you could run into issues such as not buying enough shares to affect the market price.
Forex trading has another advantage because it is available 24 hours a day, seven days a week. It means that you can do your research at night or on the weekends and still be perfectly capable of making trades with your broker anytime throughout the day.
On the other hand, stock market trading is typically open 9-5 CST Monday through Friday. For those who work during regular business hours, this could pose an inconvenience.
Which trade option is easier to understand?
Regarding which type of trading is easier to learn, both types are equally easy to grasp. However, some nuances between forex and stock trading might make one easier for beginners than the other.
From a technical standpoint, however, most people would consider both equally easy to understand.
Forex trading is more of a mobile type of trading. It’s straightforward to put on orders while you are out and about on your phone or laptop. Traders can also set up alerts if they need some help to locate the proper time to make a trade. Many brokers offer good mobile platforms for both beginners and more advanced traders.
Stock trading might require an initial investment to buy shares of stock through a brokerage service. – this, however, is not a requirement depending on how you plan to invest your capital. If you plan to invest it directly into the market, i.e. buying stocks without going through a broker, it will incur no commissions.
