When talking about the objectives most traders have before starting, a lot of them would say that it’s all about profitability, whether we’re talking about short, medium, or long-term.
Traders can choose between a few options when it comes to choosing the markets in which they can trade. Therefore, there’s no wonder that comparisons are done periodically, just to find out which market is the best to trade-in. And, obviously, the biggest ‘rivalry’ is between forex and stock markets.
Even though these two types of markets are interconnected, there are still quite a lot of differences between them!
Let’s take a few moments and talk about some of the most important ones.
Volume
From this specific point of view, the forex market can be easily considered the largest financial marketing in the world. After all, we’re talking about a daily trade value of approximately $5 trillion.
In contrast, the stock market is currently reaching just $200 billion a day.
Liquidity
Higher volumes in the market automatically result in higher liquidity. This also results in tighter spreads, along with lower transaction costs.
Both spreads and transaction costs involved with Forex are way lower than that of Stocks. The main reason? High volume and increased liquidity of the forex market.
Commissions
Of course, we also need to mention the trading costs Forex involves, as traders can observe that a lot of brokers don’t charge commissions on the traded currencies. However, they do make a margin on the spreads.
On the other hand, stockbrokers will be, in most cases, subject to paying the commission fees, as well as the spread to the broker.
Leverage
Probably one of the most useful tools for traders, which can be used to boost their accounts and allow them to open larger orders, no matter their initial deposit and available funds.
In most cases, brokers can offer a higher level of leverage on Forex, when compared to what stockbrokers offer. However, it all depends on the broker, as well as their regulation and authorizing body. Still, we should mention that stocks, however, provide traders with leverage of 1:2, with the possibility of going up to 1:50, depending on the stockbroker.
Regulations
Finally, we need to talk about regulations. Specifically, due to stocks being traded on some of the major exchanges in the world, they are subject to strict regulations. Obviously, this can impose some limits considered unwelcome, even though their purpose is to protect the trader, to a limited degree, not to mention that protection is, after all, one of the most important factors of working with a regulated broker.
Forex trading, instead, isn’t that regulated, but one of the most important aspects you should consider before starting trading is that you should find a well-regulated broker. If you want to avoid any potential losses, that is.
