Which is your favourite: Forex or Stocks?
If you’re just getting your feet wet as a trader, you might want to give both markets a spin. But first, we want you to understand the most important differences between forex and stock trading before you jump into the deep end.
So don’t start trading your U.S. dollars for Iraqi dinars on forex — or flipping penny stocks on the Nasdaq Stock Market — until you’ve read this guide.
There’s a lot to keep track of in terms of global politics & news events.
What Investments Can You Trade on Forex vs Stock Exchanges?
Forex and stock trading offer completely different investment opportunities. Forex is for trading national currencies on different currency pairs. The most popular currency trading pairs are euros and US dollars (EUR/USD); British pounds and US dollars (GBP/USD); US dollars and Japanese yen (USD/JPY); and US dollars and Swiss francs (USD/CHF). As of 2:06 p.m. Eastern Time on Tuesday, April 2, 2019, 1.00 USD equalled 111.32 JPY, but the exchange rate varies, and Forex traders try to take advantage of the price action.
Most U.S.-based traders use the Nasdaq and New York Stock Exchange. The Nasdaq features over 3,300 stocks to trade. The NYSE has around 2,800. On the Nasdaq and the NYSE, you can buy and sell the shares of companies from virtually any industry. Also, there are many foreign exchanges you can trade stocks on too. The Shanghai Stock Exchange, Tokyo Stock Exchange and Frankfurt Stock Exchange are three of the most popular foreign exchanges in the world.
What Are the Startup Costs and Trading Fees?
Forex Startup Costs
One of the benefits of forex trading is the low capital requirement for creating an account. Most forex brokers charge $50 to $100 to open a trading account. You can also leverage your assets on forex — sometimes as high 1:100 — to try and earn more. But leveraging is a double-edged sword. The more you leverage, the more you risk losing.
Forex Trading Fees
With Forex trading, there aren’t any commissions or fees, but there is the bid-ask spread. That’s the difference between the sell price and the buy price for a currency pair. As the bid-ask spread changes during the day, forex traders want to know how many “pips” it is. For example, a forex trader might notice that the bid-ask spread for USD/JPY is 5 pips. That could mean that the bid was 111.32 and the ask was 111.37. In this, case, a $1 trade would cost you 0.05 yen. That’s not much, but when you’re dealing with bigger transactions the costs add up.
Stock Trading Startup Costs
As for stock trading, there are plenty of brokers that allow you to open a small trading account for as little as $100, but the minimums sometimes $10,000 or higher. If you want to be a day trader on the stock market, you’ll need to maintain a minimum daily balance of $25,000 according to Financial Industry Regulatory Authority rules. This $25,000 requirement doesn’t exist on Forex, making forex an attractive way for traders to enjoy a rapid-fire trading experience without the capital requirement.
Stock Trading Fees
In many situations, stock trading comes with more costs and fees than forex trading. You’ll often have to pay a commission or fee to the broker for each transaction. If the broker’s fee is fixed, it’s usually under $10. There will also be small regulatory fees for the SEC, FINRA and the exchange. Plus, stock traders must monitor the bid-ask spread, just like on forex. Stock traders might also pay a flat fee to have an unlimited trading account, and there are other fee arrangements, so ask your broker.
When Can You Trade?
Forex Market Hours
The forex markets in New York, Sydney, Tokyo and London keep normal business hours. However, when one is closed, another tends to be open, allowing for constant trading except on the weekends. The forex markets are available for 24-hour trading from 5 p.m. Eastern Time on Sunday to 4 p.m. Eastern Time on Friday.
Stock Market Hours
Stock trading hours are less flexible than forex. The Nasdaq and the NYSE are open from 9:30 a.m. to 4 p.m. Eastern Time Monday through Friday. In addition, there are pre-market and after-market trading hours — 4 a.m. to 9:30 a.m. and 4 p.m. to 8 p.m. — Monday through Friday. These off-hours are highly volatile times for trading.
Forex trading and trading each has unique advantages. One of the benefits of forex trading is that investors have a limited number of currency pairs to choose from, so they don’t get confused by too many options. There’s still a lot to keep track of in terms of global politics, news events, gross domestic product figures, international economic data and technical analysis, but traders often enjoy the simplicity of focusing on a few forex currency pairs at a time.
Stock investors could enjoy having thousands of investments opportunities from which to choose. Stock traders may find hidden buying opportunities by researching new companies, reading prospectuses, checking the news, and performing technical analysis.
Try Forex and Stock Trading With TIOmarkets
At TIOmarkets, we offer our clients a wealth of trading support, resources and other benefits from seasoned financial advisors, veteran FinTech executives, cryptocurrency trading and blockchain experts and investment banking authorities.
Our cutting-edge investment services model combines a tremendous amount of expertise under one roof to deliver a life-changing approach to wealth generation.
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