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A Comparison between the Stock Market and the Forex Market

Aug 08 2011

Many people perceive the difference between the Stock market and the Forex market in the wrong way. They think that both markets are similar in terms of operation and involve the same kind of knowledge. Apart from the fact that both markets are indeed financial marketplaces, these two share very few similarities in terms of operation and structure.

There are a number of differences between the Stock market and the Forex market. The stock market operates within the boundaries of a certain economy whereas the Forex has a global structure. It involves participants from all over the world as they deal with the trading of currencies. Anyone can participate in the Forex as the use of information technology and the internet has made it accessible for everybody with a computer and an internet connection.

The Forex is relatively simpler than the Stock market. However, both markets require different types of knowledge. In the Forex market, currency is the instrument of trading whereas in the Stock market company shares are the primary trading instruments. Hence, to trade successfully in the Forex, you have to know about the economic situations of many countries and must understand the factors that affect the value of a currency. For Stock market investment, the required knowledge is usually limited within the scope of the local market and given company.

Another significant difference between the Forex and the Stock market is the operating time of each market. While the Forex remains open for trading 24 hours a day on every weekday; the Stock market follows a 9 to 5 daily operational time on each weekday. It does not operate on national holidays as well. The volume of Forex trading is significantly larger than that of the Stock market as the Forex has fewer barriers considering cross-border trade and operation period. 

The Stock market is a traditional trading platform where people make investments in company shares. In comparison, people trade one currency for another currency and make profit using the ups and downs in the currency conversion rate in the Forex. Some experts say that the Stock market is better for long term investment whereas the Forex is more secure for short term investment. However, the degree of uncertainty involved with the Stock market is higher than that of the Forex.  When the Stock market crushes, it leaves many investors going bankrupt and the economy of the whole country suffers. The recent crunch in the US stock market left a deep scar in the national economy which has not been recovered yet. The Forex also has some degrees of uncertainty, but as the options for trading are globally open in this market, it is much easier to recover loss or find alternatives.

Every financial market has its own characteristics. Both the Forex and the Stock market involve different types of risks and ways of investment. However, it is entirely up to your personal expectations and interests to decide which one to enter. You have to consider your goals and financial orientation to determine which market would be a better fit for you. Both the markets have opportunities to offer and if you can make the right use of your investment, you will be able to make profits from either. 

Article by Debbie who frequently writes about finance and currency exchange

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