Forex VS Stock which trading should you pick?

Are you investing in Forex or the stock exchange? This is one of the many questions that traders ask themselves. Forex stands for Foreign exchange market and is nothing more than the currency market, where you can trade on currency pairs.

Investing in a stock exchange, on the other hand, means buying or selling securities on the stock market.

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Forex vs stocks: which market to choose?


What are the main differences between the two markets? And why do investors prefer one or the other? In this article, we will focus on the differences in activity time, leverage, the type of analysis required and the possibility of positioning short or long in both markets.

The first difference that stands out is the period of activity of the two markets. Based on Italian time, the Forex is in fact interrupted operational 24 hours a day from Sunday at 23 to Friday at 22. The reason is easily attributable to the different time zones on Earth. In fact, the Asian session opens Forex Day, anticipating the European session, which for a short time intersects with the American session, which closes the day.

The time of the stock exchange is limited with daily opening and closing times, although the various world exchanges have different times also according to their own time zone. For example, the Italian stock exchange opens at 9 a.m. and closes at 5:30 p.m., while Wall Street opens at 3:30 p.m. (9:30 a.m. local time) and closes at 10 p.m. (4 p.m. local time).

Considering the local time zone, we find that the Japanese stock exchange opens at 9 a.m. and closes at 3 p.m.; Hong Kong opens at 10 a.m. and closes at 4 p.m., as does Sidney; while the Canadian stock exchange has the same times as the New York stock exchange.

Forex vs shares: leverage

In Forex, not only are trading leveraged, but leverage can also be very high. Some brokers allow you to trade with leverage ranging from 1:50 to 1:100. On some online platforms, you can trade using the leverage of 1:200 or 1:500.

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This financial instrument allows the trader to trade with little money and have very high profits. In fact, with leverage fixed at 1:500, an investment of 100€ becomes 50,000€. However, the lever is a double-edged sword since not only the gains but also the losses will be commensurate with the value that emerged from the leverage.

With regard to the classic method of buying shares, i.e. through banking intermediation, leverage is not included. To be able to buy shares using this financial instrument, you must use CFDs on securities.

Contracts for difference replicate the performance of the underlying, in this case, the share. With this option, the trader will not own the share directly but will be able to profit from his price movements. The leverage used for CFDs on securities is lower than that used in Forex, often brokers range from the leverage of 1:5 to generally a maximum of 1:30.

The stock market is much more volatile, while the currency market is unlikely to undergo daily changes of more than 1%. If we did not consider leverage, then the stock market would be the one that guarantees the greatest price movements, while as far as liquidity is concerned, Forex is the largest market in the world.

Forex vs Stock: technical and fundamental analysis

Technical and fundamental analysis is used by traders to implement their strategies on both Forex and the stock market. In which market is one preferred and in which is the other?

Since shares are listed companies, fundamental analysis becomes the main analysis for the stock market because often price movements are due to news about the company.

For a trader, it will be essential to know the balance sheets and reports of the company to understand whether or not it is worthwhile to invest their money. In addition, equities in the same sector or on the same stock exchange often move in similar directions. The fundamental analysis must also be carried out on the entire stock exchange chosen and on the reference market.

Technical analysis in the stock market is of lesser value, but it is important to understand which is the best point of entry and exit in the operations that the investor will be preparing to do.

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Forex vs stocks: which market to choose?

In Forex, fundamental analysis has its own value, but it is completely inferior to technical analysis. The trader should certainly know the state of health of the country (or countries) that adopt that particular currency. In the same way, as it will have to follow the monetary policy chosen by the central reference banks. In any case, however, the strategy can only be based on technical analysis.

The trader evaluates when to place himself long or short on a particular currency pair and identifies the reference trend. Above all, technical analysis helps the trader to understand how far an exchange rate can go and thus optimize earnings.

Usually, the variation of a currency ratio depends on the technical analysis; without it, the trading experience becomes much closer to a gamble than to a targeted investment.

Forex vs shares: short or long?

As these are currency ratios in Forex, it is possible to position both long and short at the discretion of the trader. For example, in the EUR/USD exchange rate, being long means predicting that the euro will appreciate against the dollar while being short means sustaining a greater appreciation of the US currency against the European single currency.

In the stock market, the differences between long and short positions are significant. Although the short-selling of shares is envisaged, it is also true that Consob in Italy has limited this instrument by imposing restrictions.

Only through CFDs can a trader point upwards or downwards on a stock. This is because Contracts for Difference are part of the unregulated market, called over the counter (OTC), and are not subject to the restrictions imposed by Consob.

Forex vs Stocks: Conclusions

In conclusion, we can say that the two markets are very different from each other, and the choice can only be subjective. It is the trader who decides whether to invest in the currency or equity market, considering his or her attitudes, money and expectations.

Without leverage, it often takes longer to make profits in the stock market than in Forex. Many operations in this last market can be concluded in few minutes obtaining enormous profits (or losses) in proportion to the invested sum, a fact not usual in the stock market just for the absence of the leverage.

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The time factor is also decisive. While Forex never sleeps, it is also true that the attention that the trader must show towards his investments is never resting. The period of the closed stock exchange can, in fact, also be read as a factor of tranquillity for the investor.

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