Forex vs stocks: which one should you trade?
Deciding whether to trade forex or stocks can be tricky. Have a look at our comparison guide between the two and decide for yourself which one is more suitable for you.
What are the differences between forex and stock markets?
A number of differences exist between forex and stock markets, such as their liquidity, volatility and trading volume. It’s important to remember that both come with their own pros and cons, so proper risk management is essential when trading forex or stocks.
What are the differences between trading forex and stocks?
Trading forex involves buying, selling or speculating on the price movements of currency pairs – we offer over 80 pairs to trade. Stock (shares) trading enables you to predict on share prices of publicly listed companies, and with us you get access to more than 10,000 international shares.
What are the key differences?
There are a few differences between forex and stock markets; let’s take a look at them.
Assets
The primary difference between forex and stock markets are the assets that you trade; forex – or FX – deals in currency pairs, while stock markets involve the buying and selling of publicly listed shares. Both of these trade on the underlying asset – you don’t buy or sell the forex pair or stock itself but predict on which direction they will move.
Liquidity
The forex market is more liquid than the stock market because forex is the most-traded asset in the world. Liquidity refers to how easily an asset can be bought or sold – the higher the liquidity, the greater the chance you’ll find someone willing to take the other side of your position.
Market liquidity varies depending on the time of day and what pairs you trade – USD is the most traded currency in the world and appears in almost all major currency pairs.1
While blue-chip stocks can have deep liquidity, lesser-known shares can be harder to trade due to their illiquidity.
Volatility
Volatility refers to how quickly and severely an asset’s price can move up or down in a period of time. The higher the volatility, the more the price will fluctuate. Because forex is so liquid, it can also be extremely volatile.
The stock market tends to be more stable and it’s easier to track price patterns over time. But that doesn’t mean it can’t be volatile. In both markets, it’s important to take steps to manage your risk.
Market influences
Supply and demand are the major factors that move markets, but that’s not all that affects them.
When trading shares, you should look at a company’s debt, cash flow and earnings, along with economic data, sector health and news reports.
For forex markets, you need to be aware of two different economies – those of the pair you’re trading. You want to look at factors like gross domestic product (GDP), unemployment, inflation, news and political events.
Forex and stock trading: what are the differences?
Much like the markets themselves, forex vs stock trading has various pros and cons.
What is forex trading vs stock trading?
Forex trading involves speculating on the value of currency pairs like USD/SGD or GBP/EUR, while stock trading is buying or selling on the price movements of the underlying shares of publicly listed companies.
What are the key differences?
Forex trading and stock trading are different in many ways – like their trading hours, leverage, strategies and location. Let’s look at these in more detail.
Trading hours
Forex is available to trade 24/5; it only closes on weekends. Stock markets, on the other hand, have limited trading hours – usually the business hours of the country where the stock exchange is located. For example, the Singapore Stock Exchange (SGX) opens at 9am and closes at 12pm for the first half of the day, then reopens at 1pm and closes at 5pm.
Leverage
Trading on leverage enables you to gain greater exposure to a market than if you were to simply buy or sell it. You can trade on leverage using CFDs, for example.
While both forex trading and stock trading use leverage, forex usually has a far larger ratio (sometimes as much as 200:1). Stock market leverage is typically more conservative, often with a leverage ratio of just 2:1.
No matter how large your leverage ratio is, profits can be magnified as can losses, so a good risk management strategy is essential.
Trading strategy
Forex trading often involves a short-term approach, as the market is so liquid and volatile. In contrast, stock traders frequently take a buy-and-hold approach, keeping their positions open for weeks or even months.
Exchanges vs over the counter
Shares are traded on a stock exchange, while forex doesn’t have a centralised exchange – instead, people trade one-on-one over the counter.
Forex vs stocks: which is more suitable for me?
Deciding which markets to trade can be tricky. You need to understand aspects like your trading goals and risk appetite. Here’s a table of the factors affecting each market to help you determine which is more suitable for you.
Factor |
Forex market |
Stock market |
Traded asset |
Currency pairs |
Publicly listed companies’ shares |
Trading hours |
24/5 |
Regular business hours |
Liquidity |
High |
Depends on the stock and exchange |
Leverage ratio |
High |
Low-to-medium |
Volatility |
High |
Low-to-high |
Market influences |
Supply and demand, country GDP, unemployment, inflation, news, political events |
Supply and demand, company debt, cash flow, economic data, sector health, news reports |
Trading strategy |
Short term |
Medium to long term |
Costs |
Spread |
Spread and commission |
How to start trading forex and stocks with us
- Create an account or log in
- Find a forex or stock trading opportunity
- Click ‘buy’ to go long or ‘sell’ to short on CFDs
- Set your position size
- Take steps to manage your risk
- Open and monitor your position
1 Investopedia, 2024
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
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