The Difference Between Stocks and Forex

Filed under: Learn Forex Trading |

 

With the ease of online trading, there are many people who invest in the stock market these days. The stock market is much easier to understand than the forex market. In the stock market, you invest in a company, and if that company does well, the stock moves up and you make money. However, many stock traders and investors are now giving their hand a go at forex trading. Access to the market has never been easier. But there are some key differences…

 

The most glaringly obvious difference between the stock market and the forex market is that the stock market has a market bias. Stocks generally tend to move up. If they don’t, then nobody will invest in them and eventually, they will probably either merge with a more successful company, or, they might go broke. Although you can go short in the stock market via a spread betting platform, most people who trade the stock market are long in the market.

 

In the world of forex, this is not the case. There is no market bias. The pair can move either way at any given time; and the number of people going long or short is roughly the same. The main thing to get used to is the perception of a forex chart. It is a two-way chart, and there is no upward bias.

 

Once you get used to this, you have to also get used to the concept of ‘lots’. This is how you work out the amount of money to buy or sell. However, there are also some similarities, and the concepts of spreads, money management, and risk-reward, are all concept that you can take from the stock market and apply to forex trading. In summary, trading forex is much different to trading the stock markets, but there are some similarities that will help you to get ahead of the learning curve if you already have some experience of trading the stock market.

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