What is the key difference between trading stocks and Forex? the stock market is a centralized market, whereas the Forex market is a decentralized market. For this reason, one thing we must notice is that there is no perfect way to measure the amount of volume actually being traded in the forex market. Even though volume is available from most forex brokers, it’s derived from the broker’s own data stream. Those numbers don’t represent the total worldwide market volume. They are only partially meaningful and helpful as they represent a proportional measure of the total volume being traded worldwide.
The second thing is that there is no uptake rule in the forex market. What it means is that the exchange requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. That’s why it’s not convenient to short-sell security for retail traders, and most are not used to short-selling. But there is no such restriction in the forex market. So forex traders can make profits easily in both directions. If we think a currency will increase in value, we can buy it. If we believe it will decrease, we can sell it. What a market this large finding a buyer when we are selling and a seller when we are buying is much easier than in other markets.
The forex market has very few compared to the thousands found in the stock market. This concentration on a few currency pairs gives us the advantage of being able to specialize and follow because rather than having to pick between 1000 stocks to find the best value, the only thing Forex traders need to do is keep up on the political and economic news. For instance, most scalpers will only trade zero because of its high liquidity and become very expert on just one pair. Stock traders can decide to specialize just in a few very liquid stocks such as Bank of America or Bank of China.
However, those strategies typically involve having to monitor the major equity index, such as the S&P 500 in the US or the Hang Seng index in Hong Kong, which makes the setup more complicated. So which is better stocks or Forex? It would be unfair to make an absolute judgment in favor of either one. It really depends on our character and preferences. Some traders naturally feel more comfortable with stocks, while others with forex.
For long-term investors, stocks may be a better choice because they can make spectacular price moves and entries don’t need to be so precise. There’s more forgiveness in getting in a bit too early or too late, for example. But for traders looking to do short-term or medium-term trading, then forex with higher levels of leverage and liquidity available should be a serious consideration. Moreover, it also requires less capital, and the scanning and filtering process is simpler than shares as well.