Forex trading is trading with the most liquid market in the world. It means that it is very easy to find a buyer or seller of the currency pair. The purpose of this article to explain the difference between forex trading from other types of trading.
Let’s have a look at the forex market and stock market. Both of them are financial markets, but that doesn’t mean there is no difference between stock and forex markets. On the contrary, there is a huge difference between those two markets.
For instance, when trading forex, a person should deal with two currencies at a time. However, in the case of stock markets, it is possible to focus only on one company’s stocks. A person interested in the stock market must analyze the company’s fundamentals and the stock’s technical performance.
As mentioned, above when it comes to the forex market situation is different as people have to deal with two currencies. Moreover, it is desirable to learn more about the countries that issued these currencies.
For instance, when an individual is trading the GBP/USD pair, he or she should look at both currencies. It means that it is recommended to learn about the United Kingdom and the United States. The U.S. has the largest economy in the world. Moreover, its currency is used across the globe.
Forex Trading and markets
Now it is time to discuss market accessibility. It is possible to trade in the forex market anytime. There is always an exchange that is ready to facilitate trading. However, there is one difference when it comes to trading volume.
As a reminder, in the stock market, the trading hours are mainly from 9:30 AM to 4:00 PM US time. People who are familiar with stock know that this is the time when the largest volume of stock trades takes place. There is a much shorter “after hours” trading time.
Let’s move to another difference between forex trading and market trading. The main goal when it comes to stock trading is to see your stock appreciate. Most of the time, this is based on a buy-and-hold approach only different in timeframes.
Forex trading is similar in a way except that a person can freely short sell a currency.
Short selling is not a hard as some people may when they hear about this first time. A person would sell currency before it slumps down. He or she would buy it again but for a lower price. The difference between these operations is profit.
It is also possible to short sell in the stock market. However, it is more difficult due to the restrictions and other issues.
Regulations and convenience
Step-by-step, we approached another difference between those two markets. The major difference between stock trading and market trading relates to regulation. The forex market is the biggest and most liquid financial market in the world. It operates 24 hours a day.
It is worth mentioning that the forex market doesn’t have a central governing body that controls transactions etc. On the contrary, the stock market must comply with rules set by central regulators.
In the forex market, several governmental and independent organizations are supervising this giant market. Traders can freely perform trading strategies without extra regulations. Even though the government still protects this market as brokers must comply with certain regulations.
To sum up, the forex market is more flexible than the stock market. Forex market is more favorable for traders who want more flexibility and convenience.