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When you trade stocks, you buy shares of companies that cost anywhere from a few dollars to hundreds of dollars. Market price varies with supply and demand. Trading on the forex is a different world. Although the supply of a country's currency can fluctuate, there is always a large amount of currency available to trade. In consequence, all major world currencies are highly liquid. In currency trading, currencies are always quoted in pairs. Not only do you have to be concerned with the economic health of the country whose currency you are trading, but also with the economic health of the country against which you are trading.

Your fundamental concerns also differ from one market to another. When you buy Intel shares, your primary concern is whether the stock will increase in value— you're less concerned with the stock prices of other companies.

When you're buying or selling on the forex, on the other hand, you have to consider the economics of two countries. Does one country have more job growth than another, or better GDP, or political prospects? A successful single trade on the forex, therefore, requires analyzing two financial entities, not one. Forex markets sometimes exhibit greater sensitivity to emerging political and economic situations in other countries; the U. The two markets have very different price sensitivity to trade activity. Stock purchase of 10, shares may impact the stock price, particularly for smaller corporations with fewer shares outstanding than, for instance, giants like Apple.

In sharp contrast, forex trades of several hundred million dollars in a major currency will most likely have little—or no—impact on the currency's market price.

Stock Broker Comparison

Currency markets have greater access than stock markets. Although in the 21st century, it's possible to trade stocks 24 hours a day, five days a week, it's not particularly easy. Most retail investors trade through a U. Forex trading, on the other hand, can be done six days a week, 24 hours a day, because there are many forex exchanges worldwide—it's always trading time in one time zone or another. When a stock market declines, you can make money by shorting, but this imposes additional risks, one of which is that at least in theory you may have unlimited losses.

In reality, that's unlikely to happen. At some point, your broker will end the short position. Nevertheless, most financial advisors caution against shorting for all, and many of the most experienced investors execute parallel stop-loss and limit orders to contain this risk. In forex trading, you can go short on a currency pair as easily as you can go long. The two positions present similar risks. No additional precautionary trades to limit losses are necessary.

Forex Broker Comparison

Stock trading on major exchanges has many regulations and limits; forex trading is less regulated. In some ways, the regulatory environment of the major stock exchanges imposes limits you may not welcome; it also protects you and other investors to a degree the forex does not. Most investors are more familiar with the stock market than with forex, and that familiarity may be comforting. The comparative freedom from regulation on the forex and its high degree of possible leveraging makes it easy to control large trades without special qualifications and a limited amount of money.

That's the upside of the forex market, and the downside—participation in the forex increases both investment opportunities and risk.

So, what is the difference between trading stocks and forex? Both of these financial instruments are vastly different and come with difference risk levels. While there are stock traders who also invest in forex and vice-versa, for the new comer, the decision of whether to invest in stocks or in forex can be quite daunting. Falling prey to some of the myths can easily make a new investor to potentially lose their invested capital.

Make no mistake, stocks and forex for that matter are both risky and the investor or speculator can potentially lose all of their invested capital. While the risks remain the same, if you look a bit deeper you can find that stocks and forex markets are quite different. Although the broad underlying principles remain the same; which is that the buyer and the seller that are involved in trading the prices of stocks and forex which are quite different. The stock markets are traded at a stock exchange. Trading at an exchange come with certain benefits. For one, traders and investors get access to the order-books which keeps a record of the buying and the selling.

This can be particularly useful for traders or investors who follow either technical or fundamental analysis. Trading at an exchange is considered to be a lot safer. Looking to the forex markets, trading is done over-the-counter. Unlike the stock markets, there is no centralized exchange for the forex markets. The transactions are done privately between the buyer and the seller. Trading stocks usually requires a much bigger capital than what you would need to trade forex. Therefore, for most average investors or speculators, forex looks like the easier way to enter into the financial markets.

While it might seem easy, forex trading makes use of leverage, which is required in order for small speculators to magnify their controlling units when trading forex. This is both advantageous and disadvantageous for the speculators. While profits can be large, losses can also be equally large to the point that they could potentially wipe out the invested capital. A major difference between stock and forex markets is the fact that when you trade forex, you are simultaneously buying one currency and selling the other.

This is different from how stocks are traded. You either buy the shares in the stock or you sell the shares in the stock. With forex, currency pairs form the instrument.

Speculation is done when you expect one currency to rise or fall against the other currency. With stocks, you buy the shares when you think that the share price of the stock will rise. Spreads, the difference between the bid and ask price are on average smaller compared to stocks. Although some large cap stocks such as Apple have tight spreads, it is not the case with many other stocks that you can trade.

Thus in the longer term, the spreads are a lot cheaper compared to trading stocks. While there are some who speculate on stocks, speculating in the forex markets is a lot cheaper. This is due to the large liquidity pool that is available. In fact most of the retail traders are often speculators holding positions for a few hours or a day at best. With stocks, it is also possible to speculate but the costs can run pretty high besides the fact that you need significant capital to speculate in the stock markets.