Stock trading and trading in the foreign exchange market fall under the same umbrella of investing capital. However, there is a sea of difference to both. They are reminiscent to each other in the idea of taking advantage of the rising of or the falling of prices in the market, but that is the only place where the similarity starts and ends. It is important for the investors to understand the difference between the two to help them decide the type of investment they wish to choose. In this article, we’ll highlight the difference between Stock trading and trading in the foreign exchange market.
Let’s begin with stock trading. Stock trading is one such investment procedures where it involves buying and selling of the shares by the individual companies. However, in Forex trading, this primarily deals with buying and selling of the foreign currencies, simultaneously- in simple terms, they’re the cash minted by two different coins of two other counties.
This gives a picture that both of the forms of trading are very different from one another and have their regions of benefit. The stock market is one of the best options when the market values are rising. This is because the low liquidities make it harder for a short sell in the market. However, on the other hand, Forex trading can be quiet lucrative when given any type of scenario. Since it involves buying as well as selling at once, the liquidity can be quiet high every time there is a trade.
Difference in regulation
Apart from their nature of buying and selling, they’re different even in their regulators. They are both regulated by different agencies, which represent within the United States. While the stock trading falls under the Securities and exchanges oversees of all the stock and equities, the Forex currency exchange falls under the Commodities Futures Trading Commission, which is a government agency.
Despite their divided regulators, both of them were introduced and governed by the governmental and non-governmental organizations to protect the individuals involving in trade, from fraudulent brokers.
Difference in Leverage
When compared to the stock market, the amount of leverage in Forex trading is quite overwhelming, which makes it incredibly lucrative and also increases the chances of risk and risk factors. In the United States alone, the Forex market works on a 50:1 leverage which means that only 2% of all the foreign exchange currency is available in the brokerage account. However, when we speak of the stock market, we get leverage of 2:1. This means that the traders ought to have at least 50% of the value of stocks in their cash account.
Difference in volatility
Like noted above, the stock market is generally more volatile than the Forex market (because it deals with currencies daily). Although they have volatility, they cannot be compared in contrast with the extreme volatility of the national stock markets.