A trader might have heard the terms ‘forex trading’ and ‘stock trading’, they both have their own unique features. Together they make up some of the most popular financial markets to trade worldwide, this comes from their large volume, volatility, and the vast amount of educational resources that are available for both forex trading and equities trading. Day trading stocks and forex both attract different types of traders, depending on personality type, level of experience, and preferred pace of trades. This blog explains what both forex trading and equities trading are and their differences.

A day trader can get started in equities trading by using trading software by TradeZero. It is worth noting that TradeZero does not offer forex services.

What is forex trading?
The foreign exchange market is the largest and most liquid financial market in the world, with a seemingly endless amount of major, minor and exotic currency pairs to trade. When day trading forex, traders can use pips to monitor price movements in forex trading to determine if the market is moving up or down. The most popular major currency pairs for forex trading include EUR/USD, GBP/USD and USD/JPY, and many others. Longing and shorting on the forex market is done relatively easily since there is no need to borrow locates to enter a short position.

What is equities trading?
Equities trading allows traders to speculate on the value of blue-chip stocks and penny stocks, which are both popular assets. Some of the most popular shares to trade are well-established companies with a large market capitalization, such as Microsoft, Apple, and Amazon. If a trader is looking for more volatility, then penny stocks could pay off since it is not unusual to see 30%, 50% or even 100%+ price moves within a day. When short selling some smaller companies sometimes you will need to pay to locate share of the stock. This is sometimes due to limited availability.
Difference between forex and stocks

Market trading hours:
Trading hours differ between the forex market and the stock market. The forex market is open 24 hours a day, 5 days a week, due to the overlap between time zones. This is one of the advantages of forex trading over stocks. On the other hand, there is a set daily timetable for stock market trading hours, depending on the specific region and exchange.

The New York Stock Exchange is open between 09.30-4:00pm, the forex market, on the other hand, remains active round-the-clock from 5 P.M. ET Sunday, through 5 P.M. ET Friday, opening in Sydney, then traveling around the world to Tokyo, London, and New York. The flexibility to trade during U.S., Asian and European markets with good liquidity virtually any time of day is great for traders whose schedules would otherwise limit their day trading activity.

Volume of assets:
A particularly attractive feature of forex trading is the volume of assets available to trade. The stock market opportunities can feel endless, however, it does not come close to forex trading volume of around $5 billion per day. But, in equities, a day trader can trade on thousands of global shares within the technology, pharmaceutical, automobile industries and more. This includes both blue-chip stocks and penny stocks. Some of the most distinguished global indices are traded on the stock market, such as the Nasdaq, Dow Jones Index and S&P 500. However, the number of shares on the stock market is not always seen as an advantage over forex trading. Some traders prefer the reliability of trading a small number of top forex pairs that have remained in the market consistently, rather than deciding between existing, new, and emerging possible stocks to invest in.

Volatility and liquidity:

A popular topic for the forex vs stocks comparison refers to market volatility and liquidity. This measures price fluctuations and volume within the markets that can either help traders to gain profits if the trade is executed effectively or losses if the trade is not successful. Forex traders in particular often look for high liquidity within the market, as this means that an asset can be bought and sold rapidly without having much of an effect on its price. Therefore, it is likely that high market volatility is more beneficial for short-term traders. Many forex strategies work to open and close positions in a short period of time, with the intention of making a profit from small price movements when the market is particularly volatile. This way, they can enter and exit trades with quick precision.

In contrast, long-term traders that prefer a buy-and-hold method may be less comfortable in a volatile environment. This relates especially to stock traders. Given that certain blue-chip stocks are known for their stability within the stock market, traders are more likely to open positions with a potential for profit in the long term. Therefore, as they are not looking for short-term price fluctuations, a volatile market may not work as well for their trading strategy.

In the end, it is up to the day trader to figure out what works best for them, maybe short-selling on the forex market works best, or trading the first hour of the day on the NYSE? It’s at the trader’s discretion to research and decide whether forex trading and or equities trading is the preferred route for them. A trader might even trade both, it all depends on what he or she is comfortable with and their day to day schedule.

cmcmarkets. (2022, August 7). Forex vs stocks. Retrieved from cmcmarkets: https://www.cmcmarkets.com/en/trading-guides/forex-vs-stocks#:~:text=The forex market is
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  1. (2022, August 7). Forex vs stocks: which should you trade? Retrieved from IG: https://www.ig.com/en/news-and-trade-ideas/forex-vs-stocks--which-should-you-trade--200720

Investopedia. (2022, August 7). Investing in Forex vs. Stocks. Retrieved from Investopedia: https://www.investopedia.com/articles/forex/11/forex-or-stocks.asp

This content (“Content”) is produced by Bram Pierik. The Content represents only the views and opinions of Mr. Pierik. Mr. Pierik’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Pierik is compensated by TradeZero for producing the Content and may also receive compensation for customers he introduces to TradeZero.

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