If you’re not familiar with forex trading, you’re probably wondering how it’s different from stock trading. But if you really want to know, both forex trading and stock trading are both risky investments that is NOT for everyone. Also, both types of investments do NOT involve any real loss unless if you convert your investment into cash. However, this is where the similarity ends.
In this article, we will list the major differences between the two. Read below to know.
1. Currencies vs company ownership
With forex trading, you’re basically buying and selling currencies in different currency pairs, for example, buying and selling dollars through your own currency. Stock trading, on the other hand, involves buying and selling company stocks.
With forex trading, your gain and loss really depends upon the strength of the currency you’re buying. On the other hand, profits and loss in the stock market depends upon the strength of a company stock, that is, you profit when you buy when stock price is low and sell it when the price is up. With stock trading, you own part of the company while forex trading does not involve ownership of any kind.
2. Trading hours
With forex trading, it is possible to trade currencies at any time of the day wherever you are in the world. With stock trading, you depend on the business hours of the stock exchange where the stock is listed on. If you want to invest in Microsoft blue chip stocks, for example, you will need to trade on Nasdaq.
3. Leverage investing
With forex investing, it is possible to trade $10,000 worth of currencies with only $50 capital. You can’t do this with stocks. Stock are sold at how many dollars per share and you can only buy as much as your investment money will let you.
4. Recovery of loss
The good and bad thing about forex trading is that currencies vary in strength on a day-to-day basis, and thus it is possible to recover your loss in the next day’s trading. Also, since currency strength largely depends on the economy of a country, the risk of total loss is rather minimal.
With stock trading, your profit and loss depends entirely on the profitability of a company. When a company goes bankrupt, there’s almost zero percent chance you will be able to recover your investment.
Risk in stock trading really depends from stock-to-stock. Blue chip stocks are premium investments where you are always guaranteed profits in trading and sometimes, dividends. Companies that are facing insolvency are riskier to invest in.
Risk on forex trading is entirely dependent on the strength of the economy that the currency is associated with.
And that’s it for the major differences between forex tading and stock trading. If you want to invest in forex trading, there are many trading websites out there to get you started. If you ask us, however, you shouldn’t trade with real money right away because, as we said earlier, forex trading is risky business. Take advantage of forex demo accounts.