The Difference between Forex Trading and Stock Market

Although they can be confused with one another, Forex trading and stock markets actually have a lot of differences.

 

To start off, the currency of the Forex market is affected by not one, but by several forums where the currencies are exchanged. For different markets, they will have different prices of currency. Thus, a change in currency in a single forum at any time can affect the market overall. Furthermore, Forex trading is done 24 hours a day, as the trades’ takes place in other countries as well. Thus, someone actively engaging in this type of trade should keep an eye on worldly affairs if they are dealing with international currencies. If big economic news is released during the wee hours of your country, the currency prices will be affected by it. This brings in the next point, that short selling can be easily done in this type of market. If the trends are going downwards, one can make use of this situation to short the currency to other people. However, because the changes in currency only has minor changes daily in trading with foreign accounts, the chances of a stock devaluing are small especially with strongly established currencies, making Forex brokers willing to extend loans much greater than the account balance. Thus, the loss in stocks is not so great.

 

On the other hand, in the stock market, the currency is set by a market maker for a specific time, which will not change then. This would occur during a regular country’s business hours, as the stock market is only opened then, making it a fair exchange for everyone.

 

However, there are restrictions when it comes to short selling when one wants to.  In this market, one can only sell a stock short when the trends are rising. As chances like this do not come easily, it is difficult to run away from the falling prices of a stock owned. Hence, with stocks, the stock account holder should have at least double the balance, which means double the capital, in case they will need to make up for possible losses should the stock prices drop, possibly to a point where it becomes worthless.