The availability of different asset classes and their lucrative returns have put forward a big question in front of the new-age investors. The million-dollar question is which marketplace is more suitable, and how can they make the most out of it?. Hence understanding the basics of these financial marketplaces should be one’s priority. Also, they must have a strong curiosity for understanding every aspect of the markets.
Comparing Forex Trading To Stock Trading
The two markets are undoubtedly some of the most popular financial spaces globally. Due to the high volume & volatility, investors choose these over other financial needs. Forex traders use pips to track the market’s movement; the stock traders predict the value of stocks.
These markets are quite interrelated as one’s price movement impacts the other. For example, suppose the value of the US dollar increases against the INR. In that case, Indian IT stocks will face a selloff since these companies need to spend US dollars to import equipment from abroad. Various currency pairs also get affected by the movement in the financial markets. Thus, it is likely to say that you need to have sound knowledge of both markets to trade in either of the markets. Both the markets follow the concept of demand and supply. So, one needs to understand these operations to master trading in these markets.
Difference between Stocks and Forex
In the forex market, we do not trade on exchanges. The trade occurs between two parties in an over-the-counter (OTC) market. Globally connecting banks organize these markets. Hence one can trade 24hrs a day, unlike the stock market’s non-flexible hours. You put your bet on pairs of currencies like EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD in forex markets. These are the top pairs, and 80% of trading volume appears in these pairs. But in the stock market, we buy stakes in a company in the form of the shares like Reliance, TCS, HDFC, etc.
Blue Chip versus Forex
Blue Chip stocks refer to the stocks of companies with huge market capitalization. Usually, a company with billions of market cap is called a blue-chip stock. These are the top firms in a country, and they are safe for long-term investing as their stock prices are less volatile. Given their huge market cap, it is also understood that their returns are just satisfying. Examples of blue-chip stocks are :
Blue chip stock
Forex versus Indexes
Spot indices are the combination of various sets of companies. Their average weightage according to their market cap makes an index. The index could be a combination of the top 50 companies of a country or top tech stocks of the country. Major indexes of the world are:
30 prominent companies
500 large cap companies
Top 30 tech stocks
Top 50 companies
One cannot trade in the indices directly but using ETFs, derivative trading, Mutual funds, etc. Index investing or trading is one of the safest investment or trading components.
Forex markets involve higher risks when it comes to trading. But in index trading, huge market movements are unlikely to happen.
Forex versus Equities
Equity or Forex are both the related marketplaces that follow or depend on each other in different terms. Movement in currency pairs causes a company dependent on that currency to change, which affects its market price.
Both these marketplaces enjoy the similar interests of the traders. So they cause a huge spike in their daily trading volumes. The equity market is still preferred more as it involves long-term investment options.
Comparing Forex Trading With Cryptocurrency Trading
Crypto traders in recent years have made huge, unrealistic profits when compared to any other financial market. Though the idea of crypto trading has been there for over a decade, it has gained more popularity in the past couple of years. For a statement, the SHIBA INU crypto coin surged over 43800000% in a single year. This justifies the interest of teenagers in this asset class.
Forex exchanges (established in the 1970s ) involve more people than crypto trading in forex trading. Different people have different opinions about Forex trading. Many consider it another way of gambling, and others run their families from the gains of forex markets. Hence we will compare both the financial markets under different aspects.
From the example mentioned above of SHIBA INU, it is obvious that cryptocurrencies are more volatile than the forex market. But what could be the reasons for huge volatility in crypto markets?
· Crypto market cap is roughly around $2.9 trillion. Forex exchanges have a daily trading volume of more than the market cap of cryptocurrencies. Hence the movement of huge sums of money in crypto markets makes it very volatile.
· Limited supply of various crypto coins makes them very volatile.
· Decentralization of crypto markets makes them prone to external manipulation. It is not the case in forex markets. The absence of a regulatory body makes it easier for big players to manipulate the markets
Liquidity in the financial markets is the availability of buyers and sellers in the markets. Crypto markets have high liquidity. As the distribution of knowledge about this asset increases, more people will rush in and play their part in increasing the liquidity.
Forex markets do not face liquidity issues as the daily trading volume in 2019 of forex markets was about $6.6 trillion.
There are risks involved in every situation where we try to beat inflation with our per annum returns or try to earn more than bank FD. ( Higher the risk, higher the return) Hence, it is more likely that crypto, an asset that is so volatile, has to have some risk. Some of the major risks of crypto assets are:
· Direct Manipulation of markets: Elon Musk’s removal of BTC as a payment option for the sale of TESLA was a classic example of a big player manipulating the unregulated market.
· Rug pulls: Rug pulls are the events wherein developers of a certain crypto coin run away after collecting a good amount of money from the investors. This practice is quite common in crypto markets, and investors lose a lot of money in these scams.
· No regulation: Decentralized nature and absence of a regulatory body make crypto very risky for long-term investors to have faith in crypto markets.
· Government Intrusions: Governments are likely to hate the idea of decentralized currencies. It disobeys the idea of state and regulation completely. Hence government’s acceptance or rejection of the use of cryptocurrency plays an important role in the future and survival of crypto as an asset
On the other hand, Forex markets are free from such manipulation as it involves huge amounts of money to move markets against the flow. Movement in forex markets depends more on global news and issues; hence sudden downfall in any currency is unlikely to happen. Forex traders do face huge volatility. They also tend to lose huge sums of money, but it is quite safe compared to the risks involved in crypto trading.
Forex markets have been there for over five decades now, and they tend to remain here for another ten decades. As a trader, one should know which market offers them a better risk-reward equation of money management, time management, and psychological management. In this case, we see that Forex markets provide better chances of survival (trading is the game of survival) than the speculative crypto markets.
Comparing Crypto Trading With Stock Trading
Stock Markets have been there for about four centuries now; crypto markets are much younger compared to that. Stock markets are considered to be at the apex of long-term investment options. They have built wealth for many over the last four centuries, and people still have more faith in the financial markets than any other asset. But considering the shorter period, would the chances of earning through stock markets remain the same as that of long-term investments?
Trading or investing in stocks?
If you ask Warren Buffet the same question, he wouldn’t consider this a question. It is a fact that all these ace investors started their careers as traders. Traders like Rakesh Jhunjhunwala and Radhakishan Damani were aggressive traders at the beginning of their careers. Still, later on in their lives, they acquired the title of greatest investors in India.
Investing seems to be a tedious task in the first place. It is a fact that most of the investors are highlighted as successful. But hardly any traders are seen under that classification. Trading in the first place looks very attractive and lucrative. But it is also the fact that almost 95% of traders in India are on the losing side of the battle, as reported by the top broker in India.
Stock trading refers to the short-term execution of trade ( buy & sell) of the company’s shares. The short term is not defined accurately in this definition. It could be considered a period of a few minutes to five to six months. Based on this, trading could be classified under the following categories:
· Scalping – a few seconds to 5 to 10minutes.
· Intraday – Involves buying and selling of shares on the same day. This type of trading is most popular and probably has the highest trading volume.
· BTST trade– It stands for ‘buy today, sell tomorrow. As the name suggests involves the execution of one leg of trade on the first day and another on the second.
· Swing Trading – Involves completion of trade in 2 days to 1 or 2 weeks.
· Positional trading– This type of trade is taken with the view of a few weeks to a few months of execution time
Crypto vs Stocks
To earn more, traders usually look for different marketplaces. Two of which are the crypto market and the stock market. We will analyze which is better, why, and how.
Crypto trading is a risky job and is in the early stages of its development as a full-time career. At the same time, stock trading has been there longer, and many people have lived their lives up to the highest standards from the profits earned through this. Trading in stock markets is a more developed process with proper regulatory bodies. But, crypto trading comes to you without any adequate backing up by any regulators( being decentralized ) with a huge risk of manipulation.
Many people today don’t understand the fundamentals of crypto as an asset or what cryptocurrency means. They do not understand the basics of blockchain technology and hence feel very uncomfortable trading this asset. On the other hand, understanding the company’s functioning, the way it earns profits, and how it impacts its CMP is more easily understood. Hence there is a great deal of healthy competition between stock market traders vs crypto market traders.
So Where to invest or trade?
Name of asset
1 Year returns
5 year returns
An experienced forex trader can earn about 20-40% per annum if his estimates are right. Forex trading needs a person to have sound knowledge of the scrip he is trading in and also be a good technical analyst.
Hence to trade in any asset class available, one must first have sound knowledge. He must be ready to learn from their trading mistakes and improve with time. It is quite obvious that one will encounter losses in the financial market. But how you overcome that by learning from it is what makes you an experienced trader. Moreover, you can switch to Stock trading Apps to have convenience while trading.
Talking about different asset classes, one must check their risk appetite and willingness to learn about different perspectives of that asset class. All investments in financial markets are prone to risks. Hence, one should always contact their financial advisors before investing in markets.
Susan Garcia is a writer by heart. She loves to travel and gain new experiences. A qualified engineer at AppsHive by profession, Susan is also a wellness specialist with many years of experience. She is someone who loves to share her learnings that she has gained in her pathway to success. Also, mental health is one of the main causes she supports, hence most of her work is in the non-fiction genre. She radiates positivity and good vibes wherever she goes.
In this article
- Best investments for 2022
- Best place to invest money right now
- Blue chip stocks
- Blue Chip Stocks versus Forex
- Comparing Crypto Trading With Stock Trading
- Comparing Forex Trading To Stock Trading
- Comparing Forex Trading With Cryptocurrency Trading
- Crypto vs stocks
- Difference between Stocks and Forex
- Forex versus Equities
- Forex versus Indexes
- Good investments for beginners
- Safe investments with high returns 2022
- Small investments that make money
- The 7 Best Investments To Make In 2022
- Trading or investing in stocks?
- Where To Invest 2022
- Where to invest money to get good returns
- Where to invest or trade
- Where To Invest This Year
- Where To Invest This Year 2022
- Where To Invest This Year Cryptos or stocks
- Where To Invest This Year Forex or cryptocurrencies
- Where To Invest This Year Stocks or cryptocurrencies