Trading for Beginners: The Difference Between Forex and Stocks
The stock market and the forex market are two of the most popular financial markets for trading. Yet, the way in which trades occur and the opportunities for making money differ across the two. However, this is not to say that one is better than the other — they are simply different.
The market you choose to trade in will depend on various factors, including your tolerance for risk, the amount of time you are able to dedicate to managing your portfolio and your overall trading style. You can learn more about how to assess your tolerance for risk by taking a look at the PDF attachment to this post.
Market Trading Hours
One of the main reasons why many traders prefer the forex market — and well-established forex trading companies such as LegacyFX — over the stock market is the opportunity to trade 24 hours a day. Trading on each stock market is limited to the hours that the specific market is open, based on the locations of major exchanges such as in New York, London and Tokyo. With forex trading, you can continue to make deals throughout the night if you like. Most forex brokers will allow for trades from 5pm EST on Sundays right through 5pm EST on Fridays, as the forex market covers global trading hours.
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Number of Products
Another reason many people enjoy forex trading over trading stocks is the simplicity of the products. No matter which stock market you trade in, there will be thousands of stocks to monitor. Even though the forex market also offers multiple products, most traders tend to concentrate on the seven major currency pairs: Euro and the US dollar (EUR/USD), US dollar and the Japanese yen (USD/JPY), the British pound sterling and US dollar (GBP/USD), the US dollar and Swiss franc (USD/CHF), the Australian dollar and US dollar (AUD/USD), the US dollar and Canadian dollar (USD/CAD), and the New Zealand dollar and US dollar (NZD/USD). For those new to trading, the idea of only having to follow seven products rather than thousands can be appealing. However, there are others who prefer the variety of the stock market — so ultimately, it depends on the individual.
Another key difference between the forex market and the stock market is that forex trading allows for leveraging without needing to meet qualifying requirements. This means that day traders, and even complete beginners, can create opportunities to build equity with only a small amount of starting capital. However, there are many risks associated with leveraging, which can result in traders losing more than their initial investment. Many people prefer the simplicity of trading without leverage where, although the potential for profit is lower, the corresponding risk is also lower.
The embedded short video explains leveraging in more detail.
To learn about one of the most trusted and transparent brokers in the industry, visit the official LegacyFX website.