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5 Differences between Trading in Stocks and Forex

  • Posted Date: January 28, 2020

5 Differences between Trading in Stocks and Forex

Entrusting your money has become an essential job today. But still, it remains a tiresome job. You cannot just invest money at any random place. Although the share market seems to be a great rescue, you can always make profits through stock tips, bank nifty tips, and stock options tips. However, there are still many queries revolving around it. The prominent question is “stocks or Forex” which one to choose. To make a choice, one should know what distinguishes these two.

Although the market has people investing in both, new investors must save their investing capital from loss. Thus this decision to choose one can be daunting as both of them can lead to loss of all the invested capital. However, certain recommendations from reputed advisories like forex or stock tips, stock option tips, bank nifty tips, etc. can help the traders to grab decent profits.

If there is anything common between stock and forex trading then it is the underlying principle; that the buyer and the seller that are involved in trading the prices of stocks and forex which are quite different.

1. Exchange v/s OTC

The first difference lies between the trading of Stock and Forex. Stock is traded at a Stock exchange whereas Forex is traded over-the-counter. Thus, one can say that the stocks are a centralized exchange, unlike the Forex market where transactions are done privately between the buyer and the seller.

Thus it is because of this difference Stocks are assumed to be a bit safer than the Forex. Stocks give an option to access order-books, which keeps a record of buying and selling, which can be further used for analysis. This option is not available in the case of Forex.

Moreover, the options for investing in the share market are more than the forex for example traders can avail stock tips, bank nifty tips, stock option tips and more to leverage their investments.

2. Cost of entry

While trading Stocks, one has to invest a much bigger capital than that of Forex. Thus new investors often look up to Forex as an easier way to get into financial markets.

Both advantageous and disadvantageous parameter of Forex trading is that it makes use of leverage, which is required for small speculators to magnify their controlling units.

Thus it might bring a large profit but can also bring equally large loss which could potentially wipe out the invested capital.

3. Buying and Selling

While trading stocks, you either buy the shares in a stock or sell them, whereas while trading Forex, the process of buying and sharing goes hand in hand because you buy one currency and sell the other. This forms a vital difference between Stocks and Forex.

Thus in case of Stocks, Investment is done when you think that the share price of the stock will rise whereas, with Forex, You invest you expect one currency to rise or fall against the other currency.

4. Lower spreads on forex

Spreads in the case of Stocks are not as tight as that in Forex. Spreads are the difference between the bid and ask price. The market may have companies with tight spreads, but they are very few.

Forex, on the other hand, involves currencies like EUR, USD, GBP, JPY, CHF and CAD which come with tight spreads. Thus if one thinks of long term investment, spreads will cost him a lot cheaper.

5. Speculation vs. Investing

Due to the availability of the large liquidity pool, speculations in the Forex market are a lot cheaper. This is not true in the case of Stocks. Thus once can also invest for one day in forex but not in Stocks.

Stocks require significant capital, thus investing for just one-day won’t get you that amount of profit. And this is the reason why Stock is an ideal market for investment.

If you still wonder which choice to make, the only solution will be to analyze your goal and understand what your risk tolerance is. Accordingly, you can choose an advisory and get some lucrative stock tips, bank nifty tips or stock option tips and make decent profits.

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