12 differences between foreign exchange and stock trading


What is the difference between stock trading and forex trading? 

There are two types of trading that are often known in the world of investment, namely stock trading and forex trading. Although similar, both of them have differences. 

Stock trading and Forex trading, both aim to benefit from the difference in price movements. 

However, there are various big differences between the two. Stocks and forex are two investment products that can be used by the public and are popular today.

Usually these two products can be used for trading systems. The thing that is meant by trading here is trading stocks and forex in a relatively short period of time.

In the hope that traders can benefit from the difference in selling and buying prices of stocks and forex.

Here are some differences in forex and stocks that need to be known if you are considering wanting to invest funds where.

1. Types of goods traded differently

In stock trading, traded products are securities of share ownership of a company.

Meanwhile in trading forex products that are traded are contract prices for the currency of a country with another country's currency.

In forex trading you will see a comparison between the prices of a currency with other currencies, in contrast to stock trading where the value of a company's stock is not compared to other stock products.

2. Number of Products Traded

In stock trading there are many choices of stocks to trade around the world, while in forex trading there are not too many choices.

As mentioned in the first point, in forex trading a currency is compared to other currencies. For example, US Dollar against Yen or commonly called USD/JPY.

There are only little pairs of products commonly called major pairs. This pair is the currency that is considered the strongest and most often traded in forex trading, namely EUR/USD, USD/JPY, GBP/USD, or USD/CHF.

While there are other pairs called commodity pairs whose movements tend to be positively correlated with commodity prices. But besides the pairs of products there are also several other pairs.

It's just that the choice of products is still not as much as the products traded in the stock market.

3. Market Fluctuations

A significant difference is in market fluctuations. The forex market has higher fluctuations than the stock market.

This is influenced by differences in market capitalization. The forex market has a market capitalization that is greater than the stock market.

For example if you are a stock trader with millions of dollars in capital. With millions of dollars in capital, you can already buy a small company in full.

While in forex trading the value of millions of dollars is not a value that is too large when compared to the overall capital traded in the forex market.

4. Market Capitalization

Compared to other financial markets in the world, other forex markets have the largest market capitalization.

This is because the forex market is international, while the stock market is limited to every exchange in each country; for example, the Indonesia Stock Exchange can only trade shares of companies that go public in Indonesia.

According to data in the first half of 2018, the average value of daily transactions of the Indonesia Stock Exchange is only IDR 9 trillion. On the other hand, according to the Bank of International Settlement's Survey of Foreign Exchange and OTC Derivatives every three years, as of April 2016 the average daily transaction in the forex market has reached more than 5 Trillion USD.

5. Factors Affecting Technical Analysis

In trading stocks, a trader must analyze the factors that influence changes in prices in the market starting from the smallest. In stock trading technical analysis, traders will analyze starting from the smallest data such as the company's financial statements, then the sectors related to the company, then the stock trader analyzes the condition of the country.

While in forex trading a trader does not need to analyze any company data. Because the trade is directly related to the currency of a country, the data that must be analyzed is the condition of one country and another.

In my own mind, stock trading requires more analysis of the company's fundamentals, whereas in forex trading the most important are news and technical analysis.

6. Short-Selling (On Margin) Facility

Short selling is a method used in stock sales or forex where investors / traders borrow funds (on margin) to sell shares that have not been held at high prices.

The hope is that the investor / trader can buy back and return the loan to the broker when the stock falls. In forex trading there are short-selling facilities or we usually listen to the margins, while in the short-selling stock market there is no, or even if there is not popular because as mentioned before, an investor / trader can sell shares by borrowing funds to sell stocks or forex that you don't have, if the stock price or forex goes down then investors / traders will benefit. While if the price goes up, investors / traders will lose.

Because it is not uncommon for short-selling investors / traders often accused of spreading false rumors in order to reduce market prices. This is feared to damage the true value of the stock market. However, if forex trading is actually a margin facility this will be a plus value.

7. Differences in Forex and Stock Trading Hours

The forex market is international; so that the market opening hours follow the working hours of banks in the United States, Europe and Asia that are alternating and interconnected within 24 hours, from Monday to early Saturday.

On the other hand, the stock exchange is usually only open during business hours in their place / region. You who want to trade while working as an office employee, the stock market schedule will certainly clash with daily working hours.

However, if forex trading, you can spend time in the morning or evening. Customer service forex brokers are usually served full day, in contrast to stock brokerage customer service.

8. Price Manipulation

In the forex market, no trader can manipulate prices, because the market scale is very large. With a market capitalization of trillions of USD, no individual or large company can dictate the direction of price movements.

This is different from the stock market which often suffers from false euphoria caused by the bookies. Indeed there are parties called brokers in forex trading, but there are also many non-dealer brokers (ECN). Therefore, price transparency is guaranteed, so that all transactions actually take place according to market prices, not the price of the game behind the scenes.

9. Market Liquidity

The huge forex market capitalization also guarantees liquidity and price fluctuations. There is always enough funds in the market, so that all sellers can find buyers, and prices are almost never stagnant.

You might find stocks that can't be traded on the stock market, because the price is stagnant and no one wants to trade it. If someone buys such shares, it will be difficult to sell them again.

However, in forex trading, every transaction will almost certainly be fulfilled because of the large scale of this forex market. If you buy GBP / USD now, later when you will sell it again, someone will accept it.

The price is definitely constantly changing, thus opening up big opportunities for profit.

10. Speed ​​of Execution of Forex and Stock Trading

High liquidity makes buying and selling transactions in forex trading can be directly executed in almost instant time.

However, if you send stock trading instructions, the order will be queued first as long as no one else has given the price to your liking; even transactions can fail if there are no matches for days.

In very volatile market conditions, the forex broker's server can be freeze so the order execution is delayed. However, this is a rare event that forex traders will not often experience.

11. Benefits in Forex and Stock Trading

When trading stocks, you will only get a profit if the price of shares that have been purchased has increased. However, in forex trading, you can reap the benefits when prices rise or fall.

In stock trading, it is also known as the term "short-selling" which aims to gain profits when the stock price falls.

However, the rules are very strict, only allowed on certain stocks, and usually not everyone can do it.

12. Differences in Forex and Stock Broker Commissions

Many forex brokers do not charge additional fees in the form of commissions or other transaction fees for traders.

Forex broker profits are obtained from spreads (the difference between the Ask/Bid rate). This is different from stock brokers who certainly cut fees between 0.1 until 0.3 percent in every sale and purchase transaction.

Well, that's the main difference between trading stocks with forex. For forex trading itself is currently very much in demand because of the margin and leverage facilities, where we can trade with smaller capital but of course in this way the risk in forex trading will be greater, so learn first forex trading before starting it.

For forex trading itself is different from other types of trading, where you can read some differences in forex trading with other trading in this blog post about what are the advantages of forex trading compared to other trades? .Thanks.