Investing money in various markets and speculations is one of the intimidating tasks, especially for the beginners. They often ask the question, “Should I invest in stocks or use the same currency in money markets like the Forex?” To answer this question, one must always have clarity about the difference between the two.
Although they serve the same purpose of investing both of these financial instruments differ in various factors, especially with the risk involved and the risk levels. While there exists stock traders that invest both in the stock as well as the Forex market, as mentioned earlier, the decision can be quiet daunting. Beginners tend to fall prey for myths that potentially drive them to the path of losing their capital.
We’re going to decode the primary differences between the two, in this article. Stick around till the end!
Exchange and OTC
Generally, the money in the stock market is traded as exchange stock, and one of the most prominent examples of it is the New York Stock Exchange (NYSE). Any trading is generally followed with benefits. For instance, all traders and investors get a limited or unlimited access order the books that help them keep track of the buying and selling business.
However, when we take a look at the Forex markets, trading is done as an over-the-counter task. Unlike the stock market, this does not comprise a centralized market, and the transactions are generally done privately between the sellers and the buyers.
Cost of entry
Trading in stocks, generally demands a higher capital when compared to the trading in Forex. Hence, for many of the investors around the globe, the trading in Forex looks like a better and a more viable option, when compared to the latter. However, Forex uses leverage that is generally used to order small speculators who magnify the units while trading. This acts both as an advantage or disadvantage for the speculators because while the profits can be large, the losses can also equally sum up to the gains.
Buying and selling currency
When we talk of investing, we’re talking about buying and selling and hence the difference between the two narrows down to buying and selling of the goods. One of the significant differences is that, in Forex, you’re simultaneously buying and selling the currency. However, in the stock market, you either buy your shares, or you sell them, there is no in-between.
IN simple terms, Forex makes use of the currency pairs as a tool for trading. You either expect the currency to rise or fall, against another currency. In stocks, the same procedure is followed by buying and selling the shares, when the price of the stock rises, you sell the shares and vice versa.