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Key differences in Forex and Stock Trading: Which is better?

Forex and stocks are two globally popular markets for trading and investing. Both markets have the potential for high returns, but they also differ in…

February 26, 2024
by fxify
6 min

Forex and stocks are two globally popular markets for trading and investing. Both markets have the potential for high returns, but they also differ in many ways. This article will guide you in choosing the right market for you based on your goals and lifestyle needs.

An Overview of Forex Trading

Forex, also known as foreign exchange, is a worldwide market for currency trading. Currencies move up and down in value due to a country’s economic conditions and bank policies, leading to price changes.  Forex traders capitalise on these moments of volatility to trade the price differences.

The forex market operates with currency pairs, such as USDJPY (US Dollar / Japanese Yen), where the first currency’s value is determined using the second currency’s value.

The exchange rate of forex pairs is always changing. So while today, the price of a forex pair may be one thing, but tomorrow it could be something else – either higher or lower.

An Overview of Stock Trading 

Stock trading isn’t just about trading, it’s also an investment in a company’s future. Many investors use stocks as a long-term investment, predicting a company’s stock price rise in the future.

Stock exchanges serve as massive marketplaces where buyers and sellers interact. Notable ones include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE), which offer a regulated and transparent platform for stock trading. However, with the introduction of CFDs, some brokers now offer stock CFDs for trading. This means you aren’t buying a stock share, but purely betting on its price movement.

If you purchase an actual stock share, some companies may pay you with dividends based on their earnings. While many traders opt to buy shares for building a long-term investment portfolio, others trade stock CFDs to earn from betting on a stock’s price rise or fall.

Forex vs Stocks: Comparison Table

Here’s a quick overview of how trading forex differs from trading stocks.

FactorsForexStock
How do traders commonly approach them?Intraday to swing tradingDay trading to long-term investing
Asset TypeCFDs (Contract-For-Difference)CFDs (Contract-For-Difference) or Stock Shares
Starting CapitalMore affordable starting capitalTypically a higher starting capital
LeverageTypically higher leverageTypically lower leverage
Market Size7.5 Trillion dollars traded daily200 Billion dollars traded daily
SlippageLow slippage due to a larger daily traded volumeHigher slippage due to lesser daily traded volume
RisksFewer diversification options and smaller market movements Susceptible to increased volatility, slippage, and a higher risk of unforeseen events impacting prices.
BenefitsEasier access for retail clients with low startup capital and open 24-hour, 5 days a week.Great for holding long-term positions with more diversification options and the potential to earn dividends.

For a more in-depth explanation, keep reading to find out the specific advantages and disadvantages of trading each market. We advise you to do so before deciding on which market to focus on!

The Advantages of Forex Trading

Less Slippage

Forex trading offers a huge market size, with around $7.5 trillion exchanged daily. This gigantic flow of transactions ensures that you can buy and sell currencies quickly, at close to your desired prices. The more buyers and sellers there are, the more likely someone will be willing to match your offer.

More Convenient Trading Hours

Forex markets are available for trade 24 hours a day, 5 days a week, so you can conveniently trade at any time during the business week.

Lower Starting Capital

Most forex brokers offer higher leverage on forex pairs, for example, up to 500:1 leverage or more. This allows traders to open position sizes of $500 in value, yet only risk $1. As a result, many traders can hold large buying or selling power in trading forex CFDs, more so than if they were trading stock CFDs (average of 20:1 leverage).

Potential Risks in Forex Trading

As with any trading market, forex comes with a set of risks. One of them involves the use of high leverage, as most brokers offer extremely high leverage for trading forex pairs. Though it means a higher potential for big returns, it also multiplies the risk you are taking with your capital!

However, when you trade with an FXIFY-funded account, you are not risking any of your trading capital. Instead, you’ll only pay for an evaluation fee to showcase your trading skills and become a funded trader. Prop trading firms like FXIFY empower you with the ability to trade with substantial sums and earn up to a 90% performance split on trading gains. It’s a great alternative gateway into the financial markets.

Advantages of Stock Trading

Earning through Dividends

Stock trading is an attractive investment avenue as you can not only hold and sell a stock share for gains but also earn through dividends shared with you by the companies.

Suitable for Long-Term Trades

Additionally, stocks often have the potential for long-term growth, allowing your investments to appreciate over time. Imagine for second, that you invested in APPL back in 2020… you would be up by 45% if you held it until 2023!

More Diversification Options Compared to Forex

The stock market is exposed to many sectors and industries, making it more effective than forex in building a diversified investment portfolio. A diversified portfolio spreads risk, and helps you avoid taking a heavy hit to a single economic event.

Potential Risks in Stock Trading

In stock trading, you are exposed to higher risks of volatility which can shift prices sharply. Though this is a market opportunity, it also means more unpredictability. Additionally, company-specific risks, like financial performance, management issues, and scandals can affect stock prices. 

The key is to diversify your stock holdings and spread risk, as you won’t be betting your fortune all on one asset. It’s important to understand this aspect of stock trading to become consistently profitable.

So, Which is Best: Forex or Stock Trading? 

Forex trading is an excellent option for traders who want to actively engage in intraday and swing trading actively, providing higher leverage and requiring lower starting capital. While stocks can also present short-term and day trading opportunities with thousands of stocks available in the market, they are primarily viewed as long-term investments. Your choice between the two is a direct reflection of your trading style, risk tolerance, and investment goals.

At FXIFY, our prop traders have access to hundreds of symbols* to trade, including Forex, Stocks, Indices, Metals, Commodities, and more with their funded accounts. We offer Raw Spreads starting from 0.0 on major FX pairs and Gold, true market execution, and some of the best trading conditions in the industry.

Become a Forex Funded Trader With FXIFY

Tailor your program to your approach and choose between One Phase, Two Phase, and Three Phase evaluation programs. Prove your skills, pass, and get funded up to $400,000 in forex trading capital with a chance to earn up to 90% in Performance Split* and your first payout on demand*.

*All trading symbols offered at FXIFY are traded as CFDs
*90% Performance Split offered as an add-on for an additional fee and available during checkout
*First payout available after 24 hours of placing the first trade in your funded account

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