Comparing Forex Trading to the Stock Market: A Comprehensive Analysis

What is Forex Trading?

We know that every country has a specific currency system and it is managed and controlled by the Central Bank of that country. We also know that the value of one country’s currency varies slightly with another country’s currency. For example: if the American dollar is valued against the Indian rupee it will be seen; American 1 dollar = Indian rupee 67. To put it this way, you need 65 rupees to buy 1 American dollar. Therefore, the exchange of dollars with rupees is Forex. Whether you know it or not, you are connected to Forex. here is an important  example for you:

Suppose you travel to America then at the airport you need to exchange US dollars instead of rupees which you can do at any bank, airport or money exchange office. If you look at the screen of the counter, you will see that you have to pay the equivalent of 67 rupees for $1. When you do this, you are participating in the forex market. You exchanged one currency for another. You exchanged dollars for rupees while traveling in America.

So the buying and selling of foreign currency is called forex. In the forex market, you can sell one country’s currency and buy another country’s currency. Forex or “FX” / “FX” is the largest financial market in the world. If compared to the New York Stock Exchange (NYSE), the NYSE trades $257 billion a day and the Forex market trades approximately $6 trillion a day.

You hear different news about the market on NYSE, CNBC, Bloomberg or BBC. They mainly talk about the stock market. So the market seems very big and noisy. But when you study something about the Forex market, you will see how big this market really is. All the banks of the world are directly involved in this market.

Forex VS Stock Market

The two markets that are creating a stir among investors in the world today are Forex and Stock Market. Both these markets are called capital market or investment market. But forex market and stock market are two completely independent and different markets. One has nothing to do with the other. The elements of trading in both markets are also different. For example, currency or currency for the forex market and shares or securities for the stock market.

Eg: Share market is a market where various limited liability companies (public limited companies) are registered on the stock exchange and their shares are bought and sold.

Stock market is 2 type like primary and secondary.

Primary Stock Market:

The primary stock market has a very important impact on the economy of a country. Companies usually launch their IPOs in the primary market. As a rule, buyers of securities in this market are individual or institutional (investment funds, insurance companies, etc.) investors. Securities in the primary market are considered to be traded between investors directly or through intermediaries.

Secondary Stock Market:

These include over-the-counter markets and stock exchanges. Here customers resell their already limited shares to other investors. The secondary market like the primary does not affect the amount of investment flows of the state in any way. The main participants in this market are the speculators who buy low and sell high.

One of the main determinants of a stockmarket is price. It is formed with the direct participation of speculators, intermediaries and investors. A market’s prices are formed by various principles: securities issued, their underwriters, demand, market conditions. These principles are considered through price formation in the stock market, setting initial highs or lows, making quick profits from sales, entering the market, and capturing a market share.

Stock traders have a variety of goals: profiting from stock price differences, earning dividends, etc. Despite the stability and security in the stock market, it is recommended that one conduct market analysis before trading in it to reduce risk. The stock market is generally located in the stock exchange. The world’s largest stock exchanges are located in the United States, United Kingdom, Japan, India, China, Canada, Germany (Frank Stock Exchange), France, South Korea and the Netherlands.

About Forex Market:

Forex market is an international foreign exchange market. The name is derived from the combination of the words Foreign and Exchange which means foreign exchange. Basically Forex is the business of buying and selling foreign currencies. The value of the currency in this market is constantly moving up and down. Profit (pips) should be made by trading on the price of this currency. ​

Currency exchange rate changes are achieved through government entities as well as commercial companies, which convert currency earned through export of goods or services into domestic currency. Although it is only 5% of foreign exchange market transactions. And the remaining 95% of transactions take place through the powerful banks of the world who earn some profit by buying and selling foreign currencies. These are basically the main driving forces of the forex market.

Another difference between Forex and the stock market is the amount of money required for trading. To buy shares from the stock market one will need quite a large sum of money, from 10 thousand US dollars to 100 thousand US dollars, but trading in the forex market can be started with even 1 dollar.

The remarkable thing about the forex market is its stability. Because the worst thing that can happen in any financial market is a meltdown or stock index collapse. However, the forex market is protected by its specific component currency which is different from other stock markets and commodity markets.

If the share price falls, it is called a financial fall. But if the US dollar falls, other currencies get stronger. Hence it drives the market. It is a very good opportunity to earn extra profit. Mentioned features that forex lines have excellent stability are: Currencies are the most liquid and reliable trading material.

Trading Advantages of Forex Market and Stock Market:

Trading in a stock market is very controlled and fixed where profit is limited and loss is within a limit but due to the leverage of forex market, the profit can be multiplied much more than the investment here and if you take risk you can lose your investment in a moment. However, it is the largest market in terms of volume and fastest-growing. The daily trading volume in Forex is about 6 trillion US dollars which is more than 30 times the trading volume of all US stock exchange markets combined.

Starting a business in the forex market is much easier than in the stock market. Finding a reliable broker is not very difficult as there are many reliable brokers in the market. Opening a free trading account with the broker takes only 2 minutes and you will need your National ID card and bank statement to verify the account. The broker’s validation team will verify your account within 24 hours, then you can start your trading activities. We will discuss these issues in detail on another article so stay tuned our blog and keep updated.