The Forex market is a decentralized global market for trading currencies while the stock market comprises individual stock exchanges located in different countries where stocks or shares of a company are traded and investment capital is raised.

In the recent years, the forex market has gained much attention from individual traders due to its unique advantages over the stock market. Here we will make a comparison among these two markets to understand how they differ.

Volume of money

The forex market turns over approximately 1.5 trillion dollars per day, which dwarfs even the largest stock exchanges. Traders can utilise large positions without significantly moving the market, and it is common to trade multi-million dollar positions. In stock trading, institutions can trade heavily, but it is uncommon for individuals to trade positions as large as this.

Trading choices

You can choose from thousands of stocks on a large stock exchange. Each is a separate business, so has its own characteristics and is subject to insider trading. Selection of a stock is an important skill in stock trading, as there are so many to choose from.

Forex offers a small number of currency pairs to choose from. Selection of a currency pair is not a key forex trading skill – the major skill is determining when to enter and exit from the market.

Decentralization

As it was mentioned earlier, the forex market enjoys huge number of international traders. The main reason behind this is it is a highly decentralized online based market, originally setup between banks. No central government has authority over the functions of forex trading. Regulatory organizations primarily are involved to ensure that brokers within that country are properly organised and capitalised.

But in case of stock market, stock exchanges are based in a particular country where the locals are basically the traders. Similarly, regulation is at a national level.

Transaction costs

Forex enjoys extremely low transaction costs, typically around $5 to buy or sell a $100,000 position, for a small trader. Large traders may pay less than $1. There is no stamp duty, and hundreds of brokers to choose from. This makes it economical to actively trade.

Stock trading has far higher brokerage, and depending on the country, stamp duty as well. This is because the stock exchange charges a per transaction fee. Also stock exchanges charge for access to their price information feeds, and this is another cost that the trader must pay.

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Tags: forex, stock market

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