What is the difference between Forex and stock trading?
Let me explain the difference in brief with some reasons. This is something that confuses most people. Some think that this carries the same idea in two different contexts while some think that stock trading is totally different from Forex trading. My answer to this is, Yes and No. Find the reasons as to say why I say so?
First I should say that Forex is primarily about buying and selling in a virtual platform. That’s exactly what happens with the stock trading as well. Then there’s no difference you would say.
But there is. Let’s take stock trading first. When you trade stocks you invest your money and buy shares of a company in the stock exchange. But when you want to make profits out of your transaction, you will have to wait until the price of the company’s shares go up. Ok then you might again think that this is true with Forex trading as well. Because there you will have to wait until the currency price goes up too. So what makes it different then?
Here, if you have been engaging with Forex trading you might have noticed that the prices fluctuate so fast that you could make instant profits as soon as you witness an uptrend or an up move. But in stocks you do not have that much of an opportunity. Another thing that you might have noticed could be that even though the prices went up, sometimes there’s a very little chance that a person at the other end is interested in the same company’s stocks. And most importantly you get the profits as dividends (apart from the profits generated by selling your bought shares) to your account for stock trading and it takes time to receive. Hence, we say that Forex is more liquid than stock trading. That means that Forex has a high liquidity rate.
There’s another big reason behind why Forex is a better option. That’s the leverage facility that the Forex brokers offer. With this the trader can buy more currencies even though he has not got much money to buy a particular currency. In that case, this makes it more convenient for the trader to gain the opportunity to try and earn.
Another factor that differentiates Forex from stock trading is that stock trading involves more risk than Forex. Because, there might be a possibility that the companies do not pay dividends for the shareholders. It is not alright and ethical to do such. But despite that, in some cases companies do that especially if their company is at stake. Under such circumstances your money will be held there without giving you nothing. And that creates a huge opportunity cost for you.
@Bevindya_Manthila , These are some of my views. Hope you got a basic idea of the difference.
Additions and other views are welcome.