The stock market and foreign exchange (Forex) markets are similar in that they allow investors to buy and sell investments, but the similarities end there. While the stock market is excellent for long-term trading, Forex trading lends itself better to short-term trading.
While both stock trading and Forex Trading are considered forms of trading, there are some fundamental differences between the two.
People who have experience in one or both areas often debate which area would be better for someone looking to get into trading as a profession. Stock trading typically refers to buying shares in companies that meet specific criteria established by exchange markets like the NYSE (New York Stock Exchange).
These companies must offer accurate financial reports, revenue projections, and other information to be accepted on the stock market. Forex trading typically refers to buying or selling foreign currencies on an exchange.
The two markets also differ in who can participate, how trades are executed, what items can be traded and other aspects. Here are seven key differences between the stock market and Forex markets.
How to open an account?
It’s easier to open an account with companies like E*TRADE or Scottrade than it is with Forex brokers because you’ll need less money to open your account ($500 vs an average of $5,000). It means that anyone can open a stock market account, while the Forex market is only available to individuals considered professional traders or have significant assets to invest in.
To trade options on stocks, you’ll need to meet additional requirements. Options allow for more strategies like covered calls and protective puts, which aren’t available in the Forex market because it’s unregulated (options trading requires registration with the SEC).
Minimum order size
The minimum size is 100 shares in the stock markets, but anything smaller than ten lots (1 contract equals USD 100,000) is not allowed in the Forex Market. For orders that are too large for one lot, Forex brokers can break up your order into several smaller orders that add up to no less than 1lot.
Buy and sell orders
While stock traders can place buy and sell orders during pre-market hours, it’s not possible in the Forex market because all trades must be executed after 11:00 AM EST when London opens for business.
The Forex Market does not have set hours for trading like the stock market, which is open from 9:30 AM EST to 4 PM EST Monday through Friday. Forex traders can trade 24/7 except on weekends if they use a broker with weekend access because most brokers stop trading at 5 PM on Fridays. If an order is placed before the closing bell, it will get filled even if currency markets aren’t open.
Traders who wish to partake in stock market trading need to know that certain taxes they’ll be subject to on their gains. Forex trading is a way for traders to avoid double taxation on foreign exchange. Forex transactions involving spot and forward contracts, swaps and some non-functional currency pairs aren’t subject to income tax withholding.
Stock markets have full-time employees employed by the Securities Exchange Commission (SEC) who monitor trades within the market continues throughout the day. The SEC does not oversee Forex trading, which means that it’s up to each broker or trader to ensure that they’re playing by the rules when trading currencies online.
Stock Trading: Exchange markets like the NYSE establish specific criteria for companies to be accepted on their market. School is a large part of your career path toward success. There are countless educational resources available to help you learn about this lucrative industry.
Forex Trading: Much of the information needed to become successful can be attained from reading books and other material available on the internet. Having a good understanding of finances and financial reports would benefit both industries.