Forex vs. Stocks | Mentor Tips

Forex vs. Stocks

There are a number of differences between trading on the Stock Market and the Forex Market:

  • Available Trades; there are thousands of stocks to choose from on the various stock markets. Conversely, there are only a few typical trades in the Forex Market. The Forex Market is structured around 7 major currencies pairs. These currencies are:
    • EUR/USD,
    • USD/JPY,
    • GBP/USD,
    • USD/CHF,
    • EUR/JPY,
    • USD/CAD,
    • AUD/USD, and
    • NZD/USD.

Although you can trade with any currencies, the above pairs form the vast majority of the Forex Market. By having a limited amount of available trades, the Forex market is easier to understand and learn compared to the Securities Market. Moreover, by following the political, fiscal, and economic policies of 8 major counties involved in the above pairs, a trader can quickly become familiar with the Forex Market.

 

  • Constant Activity; stock markets often experience low activity and volume which can make trading difficult as it is hard to open and close trading positions. The liquidity in the Forex Market prevents this from occurring by allowing traders to easily execute their plans. The liquidity in the Forex Market means traders do not have to wait for an uptick before they are allowed to enter into a short position.

 

  • Regulation; stock markets typically have a significant number of rules and regulations that must be adhered by traders. The structure of the Forex Market limits the number of applicable rules and regulations. As a Forex trade involves both buying and selling at the same time, you are implying that one will rise and one will fall.

 

  • Leverage; the Forex Market has very low margins and high leverages. Leveraged Forex traders can be leveraged at as much as much as 50:1, where as leveraged stock traders typically have at least half of their investments in their margin accounts.