The Forex Vs Equities Markets

Filed under: Learn Forex Trading |

Today, I am going to be looking at some of the differences between the forex market and the equities markets (stock market), and talk about why I prefer to trade the forex market rather than the equities market.

 

One of the major differences between the forex market and the equities market is that the forex market is a 24-hour market, whereas the equities market closes at the end of the working day. This creates some vast differences between forex charts and equities charts. The opening and closing prices of daily candlesticks on the forex charts are, give or take a pip or two, generally connected and line up so that there is a flowing, connected market with no gaps. The equities market, however, is filled with market gaps (see Figure 1 for an example with the Vodafone stock) as a result of the market being closed. In the forex market, this generally means (except for over the weekend when the market is closed) that the market will not gap past your stop losses, but in the equities market, your stop can be gapped past overnight and as such, it is more difficult to only risk a certain percentage of your bank on one trade.

 

Figure 1.

Figure 1.

Another major difference between the forex and equities markets is that there is more liquidity in the forex markets and the spreads are generally lower. The levels of support/resistance also tend to be more reliable, as there are far more people trading the forex markets. This is very important for technical analysts such as myself, as we need these levels of support/resistance to be reliable in order to give us an edge in the market. All in all, I currently prefer to trade the forex markets, but there is value in trading the equities markets for those who like to trade in large volumes, but it is important to pick and choose the best stocks to trade with the greatest liquidity and lowest spreads, otherwise, your trading edge could ultimately be lost.

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