The trading market mainly consists of options, forex, and the commodity market. Among these three markets, the forex market is the most prominent. All the three markets have a high potential of rewarding investors. When trading forex, you are taking advantage of the price movements. Your gain or loss is based on these movements. In options, you are taking advantage of the future value of stocks. The stock market, on the other hand, entails investing in the future of a company by owning a portion of it. Here are some differences between stocks, options, and forex.
The forex market is one of the most accessible markets you will come across. First, almost all forex brokers begin by availing forex trading. Secondly, the forex market is available on a 24-hour basis for five days a week. On the other hand, stocks and options are only available during the regular working hours of many organizations. This is helpful as it gives traders enough time to rest but again restraints them from taking advantages of events outside the trading hours.
Execution speed: In the forex market, the execution speed is very high.
There is always a willing buyer willing seller. The transaction is instant, and at the preferred price, there is no spillage which is common in the options and stock markets. Regarding speed and execution, forex beats the rest.
Leverage: To make money in the forex market, you will need leverage. Leverage is what raises the profit potential in these markets. As a piece of advice, kindly approach leverage with a lot of caution. It can yield significant profits but over-doing it overexposes you leading to massive losses. With forex trading, leverage is anywhere between 40 and 1000 times of the initial capital. With proper training and discipline, one can quickly raise the capital to huge amounts. On the other hand, stock and options come with relatively lower leverage.
Management of risk: There are two ways you can view risk management. You can view it in terms of exposure, or in terms of risk management tools available. Some people feel that investment in forex is very risky. Potentially you could lose your account. When it comes to options, you can only lose the amount invested. Same will apply to stocks; you can only lose a maximum of invested money. However, forex offers many risk management tools. There are stop losses as well as advanced trading tools such as limit orders which is not necessarily the case when dealing with stocks and options.
Remuneration: The brokers in stocks, options, and commodities get their remuneration in the form of commissions. For every transaction carried out, whether a buy or a sell, the broker gets a commission.
For forex, there are no commissions charged. The broker will add a spread between the bid and ask prices. It is also worth noting that the transaction cost per trade is relatively lower in forex when compared to the other markets.
Administration: forex trading is decentralized. An institution or a government do not govern it. Commodity markets, options, and stock are centralized.
Liquidity: The forex market is most liquid compared to other forms of market investments. The massive size of the market and the staggering number of players ensures there is a high volume of trades. In this market, you will find a willing buyer and seller at any given time. This is not the case for options, stocks, and commodities.
Technology: The sheer market size coupled with a large number of investors creates a lot of competition in the forex market. More companies have invested in technology to improve how forex is done with state of the art trading platforms. This is not the case with other market investments. Forex traders have access to the MT4, MT5 platforms for better trading. Companies have introduced concepts such as copy trading which may not be very common in the rest of the markets