Stock markets are available during stock exchange hours and several major exchanges including the NYSE and NASDAQ have introduced some extended trading hours. The catch, however, is that extended trading sessions are generally characterised by low trading volumes and low liquidity.
Forex market sessions are technically restricted to business hours like the stock market, however, there are multiple markets all over the world in different time zones and so traders can participate in the markets 24 hours a day. The market only stops over weekends and holidays, but with the moving time zones, even these days are squeezed tighter, almost making forex a 24/7 market.
One drawback of the forex market operating 24 hours is that the market is still changing even when you are not actively trading and you may have to work at odd hours to realise certain trades.
Forex prices are predominantly affected by global news, exhibiting sensitivity to emerging political and economic situations in other countries. You’ll need to keep up with macroeconomic issues like GDP, regional employment growth, and political prospects.
Stock prices may respond to large-scale movements in macroeconomic conditions, but they normally respond to news or earnings reports about the company’s underlying the stock or the sector the company is in. Knowledge of metrics like a company’s cash flow, profitability, and debt is essential.
Forex brokers typically charge no commission, making their margin on the spread instead. Forex majors normally have extremely low spreads and transaction costs because high liquidity tends to equate to tighter spreads and lower transaction costs.
Exotic currency pairs are far less liquid and so they have higher spread and higher transactions costs compared to major and minor pairs. Similarly, the stock market has lower liquidity, resulting in higher transaction costs. Stock traders have to pay both the spread and commission to a broker.
Stock trading on all major exchanges has many regulations and limits but forex trading is a lot less regulated which has both positive and negative effects. The major stock exchanges may impose some unwelcome limits but this protects you to a degree that trading with some forex brokers doesn’t. However, this is where your due diligence pays off when choosing a regulated broker.
Forex investment or stock trading: Which is better for you?
Some traders choose to trade both forex and stocks but if you have to choose one, it all comes down to your knowledge of each market, your goals, your trading style, and risk appetite. Both markets offer diverse investment opportunities with different perks and risks, so you have to choose what works best for you.
Whichever market you choose, you’ll be able to trade with FP Markets. They offer the ability to trade forex, stocks, and a wide range of other financial instruments with advanced trading technologies.