Forex vs. the Stock Market

As many may already know, the Forex market is the world’s largest and most liquid financial market. So when you begin comparing the foreign exchange market with the stock market, one thing that you always need to remember is the size of the forex compared to the stocks. When you actually measure them up together, the two aren’t even close in size. With over $3 trillion of daily turnover, the Forex market is more than three times larger.

The size of the foreign exchange market makes its liquidity much better. What this means is that the assets in the Forex market have the ability to be sold without causing much movement in price and with minimum loss of value. With this kind of characteristic, it allows the Forex market to function much quicker through buying and selling than any other market. When something is extremely liquid or has liquid assets, it means that actions throughout that market can be done immediately without having to wait on other factors.

Market Accessibility

One major advantage of the Forex market over the stock market is the fact that during the week you are able to trade throughout the entire market at anytime during the day or night. Unlike the stock market, in the foreign exchange market you don’t need to wait around for the opening and closing bell. The stocks operate on a Monday through Friday schedule from 9 a.m. to 5 p.m. In the Forex market however, it is open 24 hours a day starting at 20:15 GMT on Sunday all the way to 22:00 GMT on Friday.

What this does is allow you as a trader to take advantage of the best market conditions no matter when that comes about. If you have an opportunity to make a currency trade at 3 o’clock in the morning, you can rest assured that it will be open for you to take advantage of that. With the stock market you would need to wait until 9 a.m. in order to do anything because they have a closed schedule throughout each day Monday through Friday. The accessibility of the Forex market makes for a huge convenience.

Currency or Stocks

Another major difference between the two financial markets is what they are investing in. When it comes to the stock market, you as a trader are investing in stocks. The difficult part about this is that there are so many different stocks to choose from and how a stock performs is influenced strongly by the economy.

How this works is that in a down economy, it can be very difficult to invest in the stock market because it can be so unstable. Many people have taken huge losses because of this. Also, with so many stocks to choose from, it can be pretty tough choosing the right ones unless you are very well educated in it.

The Forex market on the other hand consists of picking a currency pair that you will buy and sell in order to make profit. The great thing about this is that you only really need to focus on two currencies or one pair and stick with that. Once you have done that you invest in these two currencies by buying and selling at the correct market conditions in order to make a profit.

This type of investing isn’t slowed by the economy. You can make profitable investment here as long as you pay attention and buy and sell at the right times. Overall though, it is much simpler since you only need to focus on one pair of currencies and not many different stocks that depend on economical conditions.

Summary of Forex vs. Stocks

There are approximately 4,000 different stocks listed on the New York Stock Exchange and another 2,800 on the NASDAQ. This means that you need to choose stocks out of over 6,800 to trade in the market. When it comes to foreign exchange, there are really only seven major USD currency pairs that you will need to decide between.That is a huge difference and makes it a lot easier for the trader to choose what they will invest in. Also, with the Forex market being so massive, it makes it much less affected by the economy, even in times of economic downturn.