Stocks vs Forex: Which Should You Choose?

These are two financial market heavyweights that offer a combined value of over $100 trillion. The stock market massively outweighs Forex by around $90 trillion (by some estimates), with Forex lagging behind at around $7 trillion (depending on who you ask). In this industry, things change by the minute and so there are a lot of estimates and time factors to consider.

Knowing the sheer size of these markets, however, is not enough to help guide you towards a decision on which you should choose to invest your available funds. Nope. For that, we’re going to have to dig a little deeper to provide you with a better overview of similarities, differences, and factors that might influence your decision.

The Key Differences & Similarities Between Stocks & Forex

What sets them apart and what common strengths do they boast?

Equities and Currencies

Stocks are equities, which means that when you buy them, you have fractional ownership in a business (though be aware that this is different from fractional shares, which we explore here). Buy enough of them and you will eventually become the owner of a company (FYI: that’s exactly what a corporate takeover is)!

Forex is short for foreign exchanges, and that’s because it’s the place where you trade foreign currencies with one another. All of the major currencies trade with each other; Japanese Yen trades with Euros; Dollars trade with Pounds. It goes on all day long (though each country has different opening times for their markets). However, even if you keep buying Dollars, you will never become the federal reserve. No amount of GBP will grant you rights to the Royal Mint. 

Fast Price Movements

The Forex market is a perfect place for scalping. This means you buy and sell rapidly in order to make quick, but minimal profits. For this reason, Forex traders tend to make a lot more transactions than stock traders.

Stock traders know that there is a lot more long-term potential when holding a certain stock, so they’re less reluctant to get dragged into scalping. Regardless of this fact, the fast price movements of stocks can be very lucrative to those who are really on the ball and paying close attention.

Long term, it’s typically better to hold a stock than a currency, especially if looking for investment growth. It’s unusual to hold currencies for more than a few hours, as this market is far more volatile and random than stocks, partially due to its ultra-high liquidity and inflation.

Technical Analysis

With the stock market, it’s difficult, but quite doable, to perform technical analysis on a stock, to look at the numerous factors that influence the price, and become quickly informed on the business itself.

For currencies and the Forex market, your guess is as good as ours. Millions of micro and macroeconomic events influence the prices of a currency. Trying to do technical analysis on the US dollar is almost impossible, but it doesn’t stop some experts from giving it a go!

Market Opening Times

The Forex market has way more overlap between markets than the Stock market does, so, if you’re likely to be trading through the night or burning the candle at both ends, you might want to consider your time zone and how it might affect that. 

Forex or Stocks, Which is Best For You?

Here are the questions you need to ask yourself. 

  1. Do you want long-term potential (stocks) or short term gains (Forex)?
  2. Are you looking to trade at any time of the day or night (Forex) or just during working hours (stocks)?
  3. Are you okay with randomness (Forex) or do you want more order and research-based decisions (stocks)?
  4. Do you want more stability (stocks) or volatility (Forex)?
  5. Are you looking to trade with leverage (Forex) or gain ownership (stocks)?
  6. What are your financial goals?
  7. How do you feel about risk?
  8. What’s your trading style?

Making a Final Decision

Telling you which market to choose would constitute financial advice, and that’s not what we’re attempting here. In fact, we simply want to point out that for some people, stocks will be perfect, and for those, the global currency market will provide everything they need. We all have different feelings about risk and reward, and ultimately that is what will drive our decision as potential traders.