Wondering what the difference between the forex and stock market is? You are not alone. Individuals with limited trading experience may often confuse the two, which is not surprising. This blog will demystify the difference between forex and stock market trading. 

Let’s start by looking at what these terms stand for to understand the difference. 

What is Forex?

Forex is a term that was derived from two terms, foreign exchange. It is a global marketplace where people can trade with currencies of different countries. To trade in forex implies that a person has to buy and sell a currency. 

The forex market is a leading financial market that trades billions, if not a trillion, every single day. On the other hand, the stock market was there before forex became widely known and accepted. It still exists today. 

These currencies are represented in pairs and are divided into two. There are major currencies, and there are minor currencies. 

Major currencies are currencies that are heavily traded and are most widely accepted. These currencies include the euro, US dollar, Japanese Yen, and British Pound. Trading major currencies in forex means trading these major currencies against each other such as EURUSD. EURUSD stands for trading the euro against the US dollar. 

There are minor currencies as well. These currencies are not as heavily traded but are internationally known and traded against the major currencies. As long as a currency is traded against the four listed above, they are considered minor currencies. 

Now, how does forex operate? You buy one currency and sell another. That is why they come as a pair. Using the EURUSD currency pair, buying it would mean that you buy the euro at a rate that is represented in the market. Depending on the market, you then wait for a while before you close your trade. A profit is realized when the price of the euro goes up, and a loss is realized when the price goes down. 

Simple right? Not really. 

What is the Stock Market?

Unlike the forex market, which is made of foreign exchange, the stock market comprises exchanges in the equity share of public corporations. Stock trading means dealing with some of the biggest companies around the world that have been listed on the New York Stock exchange or the NASDAQ list. 

How does the stock market work? It occurs when buyers and sellers are trading by accepting an asking price and others accept the bid price. The seller accepts the bid price, and the buyer accepts the asking price. It is like an old fashion negotiation with sellers always selling at the highest price they can ask for and buyers reaching for the lowest price possible. 

Together, sellers affect the price of the stocks. For example, when sellers are more than the buyers, the sellers will be more willing to accept a lower price, and buyers will lower their bids. What follows is that the stock prices go down. 

Now that we are here, you probably have started seeing the difference between these two. But to better understand how they differ, let’s dive deeper into how they are traded.

Difference Between Forex and Stock Market

#1 Trading Hours

The stock market and the forex market do not run the same way. They trade with different products, with forex dealing with currencies and stocks dealing with company shares. Therefore, the two do not have the same trading hours. 

The forex market is open from Sunday at 1700hrs to Friday at 1700hrs weekly. This means that during the weekend, the forex market does not operate. There are also four time zones that traders can engage in. These include the following: 

• London time zone
• New York time zone
• Sydney time zone
• Tokyo time zone

These markets run at different times of the day and will vary from region to region. Also, they may overlap each other at certain times of the day. 

In contrast, the stock market has three trading sessions that traders can trade. The tree trading sessions are as follows:

• The pre-market hour runs from 4 a.m. to 9:30 a.m. ET. 
• The regular market trades from 9:30 a.m. to 4 p.m. ET
• The after-hours market trades from 4 p.m. to 8 p.m. ET 

The stock market runs every weekday and rests on the weekend. They are at least similar in this regard.

#2 Liquidity

There is a staggering difference in the liquidity that you can find in the stock market compared to the forex market. The more liquid a market is, the higher the volume of trading it has. 

The forex market has the biggest volume. As of 2022, the forex market has a trading volume of over $2 quadrillion and an average of %6.6 trillion traded every day. On the other hand, the stock market has a trading volume of slightly over $4.7 million trade volume in a day and a market value of $200 billion. 

#3 Leverages Offered

Traders sometimes want to trade in the big leagues, but their capital makes it hard for them. Now, that is where leverage comes in. Leverage is like borrowed capital that the traders can request in a move that will maximize their advantage. 

The stock market has lower leverage as compared to the forex market. For stock markets, traders have to contend with leverage of 2:1. Which means they can only double the capital they have when they trade. 

For the forex market, the leverage is crazy high. Forex traders can get leverages of up to 500:1 or even more. Looking at this battle of the forex vs. the stock market, forex seems to be winning, right?

Okay, then let’s look at which is more profitable. 

Which is More Profitable Between Forex and the Stock Market?

If you want to become a trader in one of these markets, you probably wonder which is the most profitable between forex and the stock market. This question cannot be answered as easily as you think. 

The forex and the stock market both have their advantages and their disadvantages. However, since you have come this far, there is a big difference between the two that does not necessarily show that one is more profitable than the other. 

The difference is that forex is best for traders who want to trade in the market in short time frames. The stock market is something that can be traded over long durations. 

Conclusion

When it comes to forex and the stock markets, there is a clear distinction between the two which both could be used by technical analysis to make trades.

Have fun trading!

Click here to start your trading journey with us!