On the surface both the currency and share markets seem to be same and function on the basis of price variations caused by the disruptions in supply and demand for different assets. The fluctuating bid and ask rates are the source of returns for the traders in both of the markets. But when we delve deep into the functioning of both the markets, they seem to be very much different in various important aspects. Due to these differences, the question of forex vs akcie is a never ending debate. The traders have to pick a suitable option after studying the functioning of both the markets and deliberating upon the pros and cons of trading in each market. Traders should pick a market depending upon their investment amount, risk aptitude and their style of trading.
Major differences between forex and share markets:
- The first and foremost difference is the sheer volume of transactions in both the markets. The foreign exchange markets are the largest in the world in terms of daily transactions, giving traders the opportunity to trade both in the upward market or the down ward market. The transactions in share market are very less when compared to the forex market. Because of low transactions it becomes easy for a big broker or a financial institution to influence the dynamics of the market causing huge volatility in prices which is not the case of currency markets. In currency markets, the exchange rate is purely based on the supply and demand dynamics and cannot be altered by a single person, not even by the big institutions. Since the currencies are traded all over the world, the volume of transactions is very huge when compared to the share markets.
- The number of assets available is another point of difference between both the markets. The share markets have thousands of companies, whose shares are traded in the exchange. The traders have to select the most profitable assets to trade after scanning through all these companies. While there are many currencies, there are only seven important currency pairs which most traders prefer like EUR/USD, GBP/USD, NZD/USD, and USD/JPY. The forex traders have to just track these important currencies and be up to date with the happenings in the countries issuing these currencies.
- The forex markets function throughout the day. It means they are working 24 hours a day because currencies are traded throughout the world and the variation in time zones effectively means that the forex market is functioning 24 hours in a day, traders can choose the most preferable time for them to trade. They can choose to trade after their working hours at the job and earn a few extra bucks. The large working hours also mean vast opportunities for the traders to earn returns. On the other hand, the share market functions only function for 7 to 8 hours in a day. This limits the trading opportunities for part time traders.
- The key point of difference between both the markets is the leverage. The forex markets are highly leveraged markets. Leverage is the small margin the traders are required to deposit to trade in the markets. The forex markets work on a leverage of anything between 50:1 to 200:1. There are no pre requirements to gain this leverage. Just open a forex trading account with any of the registered broker and you automatically get the leverage to trade the markets. But the share markets are not this leveraged. You can only get a 2:1 leveraging in these markets. To get the leverage there are some pre requirements. The brokers do not provide leverage to all the investors in the share market. The high leveraging of forex markets also has a downside. Since the forex markets are highly volatile, every small fluctuation in price leads to extra margin call. And if the trader does not pick his bets carefully and trade responsibly, the leverage can lead to huge losses when the markets are in downswing.
- Liquidity is another important point of difference between both these markets. Foreign exchange markets are highly liquid since they trade the currencies of different countries. Because of high liquidity, a trader can enter and exit his positions at any point of time. The supply of a currency may alter but the large volume of daily transactions means there is ample currency available in the market to trade. On the other hand the stock markets trade in shares of companies registered on the exchange. The shares issued by a company are limited in number and the prices vary depending upon the demand and supply of these shares. If the market is in bearish phase the trader may not find any takers for shares of a particular company making them illiquid until the market conditions change. High liquidity gives forex markets an upper hand in the forex vs akcie debate.
- In foreign exchange markets, the currencies are always traded in pairs like the EUR/USD. The traders have to stay abreast with the political and economic news of both the countries to predict the price fluctuations of both the currencies. The stock markets on the other hand trade shares of companies. The trader has to study only those companies which he is interested to trade and keep an eye on their price fluctuations.
- The transaction costs in forex markets are very low when compared to that of share markets. The foreign exchange brokers do not charge any commission on the trades. They make their money from the small difference in the bid and ask prices of different trades. It is also easy to enter the forex markets with the free demo accounts provided by these brokers where you can pick up the knacks of trading in these markets. The brokers in share markets charge a commission on each order which is quite high. Apart from that there are regular fees you have to pay to operate your trading account with these brokers.
Apart from these there are many other differences between both the markets like the regulation, rules of trading, factors influencing the price movements and risk factors. The forex markets offer huge returns with a small fluctuation due to huge lot sizes while the returns in share market are good provided the trader stays invested for a longer term.
Ultimately it is the sole choice of the trader to make a decision on whether to trade in forex or share markets. Both the markets have their own set of advantages and risk factors. The trader has to choose a market that suits their investment strategy, risk appetite, the time they want to stay invested and the expected returns, and the amount of investment. Always keep in mind that it is advisable to exercise caution and trade responsibly without falling for rumours in any of the market of your choice.