Key differences in Forex and Stock Trading: Which is better?
Forex and stocks are two globally popular markets for trading and investing. Both markets have the potential for high returns but differ in many ways….
Forex and stocks are two globally popular markets for trading and investing. Both markets have the potential for high returns but differ in many ways. This article will guide you in choosing the right market for you based on your goals and lifestyle needs.
An Overview of Forex Trading
Forex, also known as foreign exchange, is a worldwide market for currency trading. Currencies increase in value due to a country’s economic conditions and bank policies, leading to price changes. Forex traders capitalise on these moments of volatility to trade the price differences.
The forex market operates with currency pairs, such as USDJPY (US Dollar / Japanese Yen), where the value of the first currency is determined using the second currency’s value.
The exchange rate of forex pairs is always changing. So while today, the price of a forex pair may be one thing, tomorrow it could be something else – either higher or lower.
An Overview of Stock Trading
Stock trading isn’t just about trading; it’s also an investment in a company’s future. Many investors use stocks as a long-term investment, predicting a company’s stock price rise.
Stock exchanges serve as massive marketplaces where buyers and sellers interact. Notable ones include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE), which offer a regulated and transparent platform for stock trading. However, with the introduction of CFDs, some brokers now offer stock CFDs for trading. This means you aren’t buying a stock share, but purely betting on its price movement.
If you purchase an actual stock share, some companies may pay you dividends based on their earnings. While many traders opt to buy shares to build a long-term investment portfolio, others trade stock CFDs to earn from betting on a stock’s price rise or fall.
Forex vs Stocks: Comparison Table
Here’s a quick overview of how trading forex differs from trading stocks.
| Factors | Forex | Stock |
| How do traders commonly approach them? | Intraday to swing trading | Day trading to long-term investing |
| Asset Type | CFDs (Contract-For-Difference) | CFDs (Contract-For-Difference) or Stock Shares |
| Starting Capital | More affordable starting capital | Typically a higher starting capital |
| Leverage | Typically higher leverage | Typically lower leverage |
| Market Size | 7.5 Trillion dollars traded daily | 200 Billion dollars traded daily |
| Slippage | Low slippage due to a larger daily traded volume | Higher slippage due to lesser daily traded volume |
| Risks | Fewer diversification options and smaller market movements | Susceptible to increased volatility, slippage, and a higher risk of unforeseen events impacting prices. |
| Benefits | Easier access for retail clients with low startup capital and open 24-hour, 5 days a week. | Great for holding long-term positions with more diversification options and the potential to earn dividends. |
For a more in-depth explanation, keep reading to learn the specific advantages and disadvantages of trading each market. We advise you to do so before deciding which market to focus on!
The Advantages of Forex Trading
Less Slippage
Forex trading offers a vast market size, with around $7.5 trillion exchanged daily. This gigantic flow of transactions ensures you can buy and sell currencies quickly, at close to your desired prices. The more buyers and sellers there are, the more likely someone will be willing to match your offer.
More Convenient Trading Hours
Forex markets are available for trade 24 hours a day, 5 days a week, so you can conveniently trade at any time during the business week.
Lower Starting Capital
Most forex brokers offer higher leverage on forex pairs, for example, up to 500:1 leverage or more. This allows traders to open position sizes of $500 in value, yet only risk $1. As a result, many traders can hold large buying or selling power in trading forex CFDs, more so than if they were trading stock CFDs (average of 20:1 leverage).
Potential Risks in Forex Trading
As with any trading market, forex comes with a set of risks. One of them involves high leverage, as most brokers offer extremely high leverage for trading forex pairs. Though it means a higher potential for big returns, it also multiplies the risk you are taking with your capital!
However, when you trade with an FXIFY-funded account, you are not risking any of your trading capital. Instead, you’ll only pay for an evaluation fee to showcase your trading skills and become a funded trader. Prop trading firms like FXIFY empower you with the ability to trade with substantial sums and earn up to a 90% performance split on trading gains. It’s a great alternative gateway into the financial markets.
Advantages of Stock Trading
Earning through Dividends
Stock trading is an attractive investment avenue as you can not only hold and sell a stock share for gains but also earn through dividends that companies share with you.
Suitable for Long-Term Trades
Additionally, stocks often have the potential for long-term growth, allowing your investments to appreciate over time. Imagine for a second that you invested in APPL back in 2020. You would be up by 45% if you held it until 2023!
More Diversification Options Compared to Forex
The stock market is exposed to many sectors and industries, making it more effective than forex in building a diversified investment portfolio. A diversified portfolio spreads risk and helps you avoid a heavy hit by a single economic event.
Potential Risks in Stock Trading
In stock trading, you are exposed to higher volatility risks, which can shift prices sharply. Though this is a market opportunity, it also means more unpredictability. Additionally, company-specific risks, like financial performance, management issues, and scandals, can affect stock prices.
The key is to diversify your stock holdings and spread risk, as you won’t be betting your fortune all on one asset. Understanding this aspect of stock trading is important to becoming consistently profitable.
So, which is Better: Forex or Stock Trading?
Forex trading is an excellent option for traders who want to actively engage in intraday and swing trading, providing higher leverage and requiring lower starting capital. While stocks can also present short-term and day trading opportunities with thousands of stocks available in the market, they are primarily viewed as long-term investments. Your choice between the two directly reflects your trading style, risk tolerance, and investment goals.
At FXIFY, our prop traders can access hundreds of symbols* to trade, including Forex, Stocks, Indices, Metals, Commodities, and more with their funded accounts. We offer Raw Spreads starting from 0.0 on major FX pairs and Gold, true market execution, and some of the best trading conditions in the industry.
Become a Forex Funded Trader With FXIFY
Tailor your program to your approach and choose between One Phase, Two Phase, and Three Phase evaluation programs. Prove your skills, pass, and get funded up to $400,000 in forex trading capital with a chance to earn up to 90% in Performance Split* and your first payout on demand*.
*All trading symbols offered at FXIFY are traded as CFDs
*90% Performance Split offered as an add-on for an additional fee and available during checkout
*First payout available after 24 hours of placing the first trade in your funded account
