Forex vs. Stocks
Which of these profitable markets works best for you?
The world of investing can be an enthralling challenge with the added benefit of saving and earning money for your future. This world can open up so many opportunities for managing your wealth. Investing can be a great way to protect and build your savings. Investing in profitable sectors, certain currencies, gold, real estate, and more can make all of your personal and fiscal goals come to fruition. Whether you are looking to save money for retirement, a college fund for your kids, or diversifying an existing portfolio, knowing how different investment types work will be the key to making an educated decision. It will also help you and your advisor come up with the best investment strategy that will get you to your financial goals.
Investors today have so many markets to choose from. Depending on your goals, different investments can be right for you. Two investment markets, forex and stocks, are quite similar and many have trouble deciding which would work best for them.
They are similar in that the prices fluctuate based on supply and demand, but that’s where the similarities come to and end. The FX and stock markets offer completely different kinds of investments and will earn you quite different returns. Each could be a good idea, but it really depends on what your personal goals are.
Read below to discover the differences between the two markets. If you have trouble choosing between the two options, please feel free to contact Alpenrose. Our advisors can help discuss your goals to determine which would work best for you.
Foreign exchange, forex, or FX, accounts allow investors to trade all major currency and some emerging market pairs. The forex market allows companies to move money across borders easily, minimize foreign currency risk, and maximize returns. This is the market where you can buy other currencies, like Swiss and Chinese, for financial gain.
The FX market works in the same way as other financial markets. You buy and sell currencies at the current rate. An exchange rate is the price of currency as it compares to another. Exchange rates are primarily expressed in USD since the U.S. currency dominates the financial markets.
Exchange rates are determined by supply and demand, except in situations when the rate is pegged or fixed. When the exchange rate is influenced by various market factors, it is called floating exchange rate. This can be changed by interest rates, economic conditions, political opinions, and predictions about the future.
Trading on the FX market operates 24 hours a day for 5 days, which means trading does not happen in one central location. Instead, the trading happens through electronic communication networks (ECNs) and phone networks around the world.
The forex market can be tricky. If you are new to currency trading, there are many mistakes that can be made. With the help of an advisor who is well versed in the art of trading currencies, you can choose transactions that will benefit you safely.
With the help of Alpenrose advisors, you can protect you or your company with foreign exchanges. Clients who have FX advisory accounts with Alpenrose are typically finance professionals who are looking for the safety of a top-rated Swiss custodian bank with the professional advice of our FX specialists and best-in-class execution of our partner banks.
When buying a stock, also known as an equity, an investor is buying a piece of the company as a share. The share price of the company is based on how much the company is estimated to be worth and how many shares are being issued. When the share is bought, the company gets to keep the money made while the share continues to be sold on an exchange.
When the stock is sold on the exchange, the company is no longer receiving any of the money.
The reason buyers and sellers continue to trade their stocks is because the perceived value of the company changed over time. Some investors lose money depending on how well they can predict the market. The market is a big sea of investors and traders who buy and sell shares, changing the prices.
Trying to make accurate predictions about the stock market is hard, therefore many stock investors buy stocks in many different sectors. This is known as diversification and is a vital part of financial planning.
The goal in the stock market is to make money through buying stocks in companies that are expected to perform well.
While the trading of the two investments are quite similar, the two markets are very different. One of the biggest differences is the number of opportunities in each market. The forex market has very few options compared to stocks. The forex market focuses on currency pairs. For this reason, trading on forex is easier to follow. There are nearly 10,000 stocks to choose from and it’s often hard to find the best value.
When You Can Trade
One of the major differences, and one of the reasons many choose forex over stocks, is the 24-hour trading. The stock market is only open 8 hours a day, leaving gaps in the morning. On the forex market, you can hold a trade overnight.
Another difference between the two is the leverage. Leverage is the minimum amount that is required to trade an asset unit. In the stock market, the leverage is roughly 5:1, while it’s at least ten times more in the forex market, at around 50:1. Some forex brokers even offer an average leverage of 100:1.