Comparing foreign exchange and the stock market.
Trading is everywhere at the moment, with internet users being bombarded with adverts all over social media and YouTube, but do you know the difference between the different kinds of trading?
In this article, we’ll be looking at the main difference between foreign exchange trading and stock market trading, as well as telling you why foreign exchange trading might be the ideal form of trading for you.
What do they involve?
Foreign exchange trading is the buying and selling of different currencies in which traders will look to exploit the volatility of the currency world in order to make a tidy profit and get the best possible returns. It is seen as a good form of investment because you are less likely to be out of pocket by too much, which is why many beginners like to trade this way.
In contrast, stock market trading involves investors speculating on how a stock, or share, will react in both the short and long-term market. Investors will look for notable things happening in the news in order to predict a potential rise in stock price, such as a company announcing a significant profit or a new product being released to consumers.
Which is harder?
Stock market trading is seen by many as being the harder form of investment because a company can see its share price plummet overnight, which is something we don’t typically see happening in the foreign exchange market, although it can still happen every once in a while. That being said, this volatility can also result in massive returns for investors.
It can also be more challenging for investors to predict movement as a number of different factors influence stock prices. An example of this would be when Tesla saw its stock price crash dramatically when Elon Musk appeared on a popular podcast and said several controversial things about the company.
What are the costs involved?
Cost is, of course, a huge factor when it comes to trading, especially when a trader is new to the game and unsure about how much they want to commit. In the stock market trading world, you’ll generally have to pay fees to the broker, as well as other costs including commission and stamp duty, which can eat into your margins.
The fees are usually lower for foreign exchange traders, and you also won’t need to pay stamp duty, while you are less likely to pay transaction taxes as most countries will not require this. This doesn’t mean you’ll make more money, but it does mean that you’ll be able to take more of your profits home with you.
How can you trade foreign exchange and stocks?
When you trade, whether foreign exchange or stocks and shares, you’ll almost always have to use a broker as they’ll help you facilitate and action the trades. Choosing the right broker is really important, and you’ll have to take into account their fees, the range of markets they provide access to, and how much support they can offer.
There are several different ways that you can choose an online broker:
Check out online reviews
A quick Google search will reveal a range of different opinions on who the best online brokers are. It is worth reading a few reviews before making your decision, as once you find a broker, you’ll likely stay with them for a while.
Ask other traders
The trading community can be your greatest asset, whether you’re a total novice or a seasoned trader. Looking for information online will be really helpful if you need help finding a broker that can cater to your specific needs.
Comparing fees and features
Once you have found a few potential brokers, it is worth comparing their fees and features to see which one is the best fit for you. While some brokers may charge you more, that may be for a good reason, so make sure to weigh up the pros and cons.
Why might foreign exchange trading be the better option?
If you are new to trading, foreign exchange trading might be the better option for you. This is because foreign exchange markets tend to be more stable than stock markets, making it easier to predict changes in currency rates. In addition, as we have already mentioned, transaction costs are typically lower in the forex market than in the stock market.
Of course, whether you trade stocks or forex will ultimately depend on personal preference. The most important thing is that you do your research and understand the risks involved before making any trades, as you should always aim to trade from a position of knowledge. Make sure to take your time and do all your research first – that’s the most important thing!
