Forex trading market is the world’s largest and the most liquid financial market. However, the second most popular market is the stock market. The main difference between the two markets is the number of trading alternatives available. The Forex market has just a few options compared to the thousands that can be found in the stock markets. There are multiple other reasons why traders/ investors prefer to trade in the forex market instead of the stock market. They are:
1. Limited Number of Trading Choices
There are only eight major pairs of currency in the forex trading market and thousands of stocks available in the stock market. The currency market with its far fewer choices makes a trader’s job much simpler, thus luring many investors/traders towards it. Most forex traders stick to the major pairs and for this, they essentially have to watch economies of the concerned currencies. However, in the case of the stock market, there are thousands of stocks and researching on even a few of them is a tiresome job.
2. Liquidity
The forex market is much larger than equity markets. It is extremely liquid because all the major world currencies are highly liquid. Also, the number of people who are involved in forex trading at the same time and the daily trade volume is humongous. On the other hand, the stock market is highly variable. It runs on the principles of demand and supply. Therefore, it is considered lesser liquid with a few major companies acting as exceptions.
3. Volatility
The Forex market is far more volatile due to aggressive traders. In addition, currencies are also well-known for staying with the trend for a long time, despite their volatility. It is exactly opposite in the stock market.
4. Leverage
High liquidity leads to high leverage and low margins. Forex Market is a typical example of the same. Evidently, the forex market offers superior leverage. The forex market can go up to 1:1500. Conversely, the leverage rate offered by the stock market is as low as 1:2.
5. Flexibility to Go Long and Short
Forex market offers the flexibility to go long and short with such ease. Forex traders always have equal access to trade in a rising or falling market. The choices are completely based on the forex trader. Alternatively, stock markets can frequently go low, resulting in declining volumes and activity. It gets very difficult for the stock trader to work as per his/her wish. Also, in a declining market, a stock trader can rarely make any profits.
6. Commissions
Commissions in the stock market are comparatively a lot higher than in the Forex market. Stock market charges commission fees on top of their spreads and a fee have to be paid to the exchange as well. But most of Forex brokers do not charge commission or additional transaction fees while trading in different currencies online.
The benefits of trading in currencies in the forex trading market are exceedingly higher than trading in stocks. However, it is a matter of a trader’s personal preference and risk tolerance as well that helps in deciding which of the market is more preferable to the trader.