Introduction
The Stock market and the Forex market are the most widely traded markets in the world. Many traders who enter the universe of trading are often in a dilemma on which market to trade on. Though both markets involve trading instruments, there are many differences between these two. In this lesson, we shall get insights on the different features of both markets and then come to a conclusion on which is the market has got the upper hand.
Market timings
The forex market is open for 24/5. This proves to be a considerable advantage, as traders can trade anytime during the trading hours according to their schedule. While this is not the case with the stock market because they’re open only for 7-9 hours in a day. So, the stock market timings can be helpful only to full-time traders.
Facility to buy and sell short
As already discussed in the previous lesson, there is no directional bias in the forex market. The process and working for buying and selling is the same. Hence, a trader can participate during any condition of the market. In the case of the stock market, there are few restrictions on short selling a stock. Though the facility for short selling is available, the procedure is not as simple as buying a stock.
Leverage/Margin
Leverage is the facility provided by the brokers to take larger positions with smaller capital. Leverage is one of the reasons why small retail traders take part in the market. Now, comparing the leverage in the stock market with the forex market, the difference is quite significant. In the stock market, maximum leverage for a day trader is up to 4:1 and for a positional trader, it is up to 2:1. Coming to the forex market, the leverage is commonly around 100:1. In fact, in some brokerages, it goes up to 500:1 as well. However, it cannot be concluded that it is better to choose the forex market over the stock market. This is because, as the leverage increases, the risk involved in the trade also increases.
Dividends
Dividends are basically perks given by companies if an investor invests in their company. Investing in a stock that provides dividends to their customers can be considered as a risk-free business. This is because, even if the stock underperforms in the market, you are usually assured of dividend income. But, in the forex market, there is no concept of dividends as such. Hence, this market is for the ones who are willing to take the risk.
Diversification
Many traders look for diversifying their portfolio. In the US stock market, there are around 2,800 stocks listed on the NYSE and 3,100 on the NASDAQ. And these stocks are put into different sectors. The sectors have their specific features and perform differently from other sectors. Hence, the stock market is an ideal market for the ones looking to diversify their investments.
Conclusion
In considerations of the above features of the stock market and the forex market, it is quite hard to stay biased. In the initial features, the forex market proves to be a better market, and when it comes to dividends and diversification, the stock market is the clear winner. Hence, from this, we can conclude, ‘the best market’ is a variable factor. It all depends on the type of trader a person is.
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