With technology entering its most advanced stage yet, more and more people are discovering new online opportunities that were not available for previous generations. Trading and investing immediately emerge among the most popular examples of this. However, when new would-be traders try to decide which markets to go for, they often get confused by numerous aspects.
One such dilemma is which is harder to trade, stocks or forex?
Stocks trading vs. forex trading
As you probably know, both stocks and forex can be traded rather easily these days. All you need to do is find an online broker, set up your account, deposit some money, and you can start trading pretty quickly.
Depending on the broker, your account can be set up within minutes or days, but once that's done, the rest is pretty simple from a technical standpoint.
A more challenging issue is approaching the stock/forex trading from the learning standpoint, and deciding which one is better to go for depends on several aspects.
The first of these aspects, of course, is you, the trader. You need to decide how much money you are willing to put into trading, as well as choose whether you wish to go for long-term investments, or if you would rather like short-term trades. Stocks are better if you wish to invest and forget about that investment for months, or even years.
Meanwhile, trading forex is something that is the most profitable if you do it in the short term. However, this is still only scratching the surface. To truly understand the difference, we have to go deeper and fully explore what each of these two markets has to offer. So, let's do that now, and then you can decide which one is better for you.
How do the stock market and forex market differ?
While trading in these two markets is similar in some aspects, the markets themselves differ greatly. Here are some of the biggest differences that you should consider when choosing which one to go for.
When it comes to available instruments, stocks are definitely not making it easy for their traders and investors. There are literally thousands of them for you to choose from. Some traders solve this issue by reviewing as many of them as they can, and then choosing a few and sticking to them. They would usually only trade with these ones and ignore the rest of the market.
However, there are also those who tend to follow the opportunity instead of waiting for it to come to them. They go from stock to stock, investing in those that seem to be on the rise, and moving on when the situation starts to take a turn for the worse.
Then we have forex traders, who have a much easier situation. All they need to do is get good at reading the movements of a few currencies. In fact, a single pair, consisting of two currencies, can be enough for those who wish to specialize. Currencies see changes all the time, and buying one and trading it against the other, and then reversing the process when the situation changes is a much easier way to do this.
As you may be aware, stock trading is not available 24/7. In fact, you can only do it during business hours on workdays, and it is closed completely on the weekends. This means less opportunity for you to trade, which might be a problem for some people.
Forex, on the other hand, can be traded 24 hours per day during workdays. While this market also closes for the weekend, it is still much more available than what you get if you go after stocks.
When it comes to technical analysis, this should not worry you too much. This is possibly one of only a handful of aspects that will remain the same. After all, a chart is a chart, and once you learn to read one, you can read any other out there, no matter the market or the instrument in question.
Of course, the situation is a bit different when it comes to:
When it comes to stocks, you need to know a lot about the companies whose stocks you are trading. You need to get a deep understanding of its balance sheet, and all kinds of other financial information. You should also take a look at its roadmap, past and upcoming partnerships, historical performance per quarter, or even per month, the revenue, and much more.
It is, once again, a bit easier with forex, as you only need to look into the economy of the countries whose currencies you are trading against one another, in general. In addition to that, it would be good to get a feel for the public sentiment, as knowing what people think of the currency might be an indication of what the currency might do. Other than that, there is not much that you can or must do, as trading forex doesn't require that much research. You simply need to be at the right place and at the right time to take advantage of an emerging opportunity.
Some research is recommended, of course, so that you might be able to tell if the new change is just a random fluctuation, or if it happens due to some major economic reason. That can help you understand if it is going to be corrected soon, or if it might lead to a bigger drop in the value of a currency.
Liquidity can be troublesome when it comes to trading stocks, as you can sometimes try to buy or sell, and end up not having your order filled. This often happens when there is no liquidity, meaning that no one else is buying or selling at that specific time. Of course, that mostly happens when you trade stock of a minor or unknown company, whose shares are thinly traded. Major firms don't usually have that problem, but then, some traders don't like to go for major firms' shares, as they see potential elsewhere in emerging startups.
Something like this is almost impossible to happen with forex, as currencies are being traded all the time. If there is any market with a guarantee that your order will be filled, it's this one. The only case when this might not happen is if there is a catastrophic event that might get the systems overwhelmed, but if nothing like that happens, you will likely never experience the lack of liquidity.
After a while, when traders get some experience, they often get attracted by the concept of leverage. Regular trading becomes too monotonous, or perhaps they wish to try and earn more money, feeling confident enough and believing that they can handle the extra risk. And indeed, some tend to become quite good at it.
However, when it comes to stock trading, they might get disappointed when they discover that the best leverage they are likely to get is only 1:2.
This will hardly make a difference for many of them. The situation is, once again, much more beneficial when it comes to forex trading, where the minimum tends to be at 1:33, and the maximum even 1:100. Naturally, this is much riskier, but the rewards are also much, much higher for those who are willing to take the risk.
In the end, it seems obvious that forex trading is much more liquid, with better leverage, more available, and requires less research in order to get you started. As a result, we would say that forex is, in fact, easier to trade and get into, but that doesn't mean that trading stocks is bad. In fact, many choose to do it for a number of reasons. In the end, it all depends on you and what you want to achieve and do.
Author: Ali Raza - A journalist, with experience in web journalism and marketing. Ali holds a master's degree in finance and writes extensively about the financial markets and fin-tech industries.