Stock Trading vs. Forex Trading: A Detailed Comparison

Investors and traders today have access to a number of trading instruments. These include tried and tested blue-chip stocks to fast-paced futures and foreign exchange (forex) markets. Choosing between stock trading and forex trading can be difficult, as many factors need to be considered. Our stock trading vs. forex trading guide will help investors decide which, stock or forex trading, is ideal for them. 

Our stock trading vs. forex trading guide will look at stock and forest trading and understand which is more profitable. We will also look at the best stock and forex pairs and platforms where you can trade them. Let’s get started!

Stock Trading vs. Forex Trading: Key Points

• Investing in stock indexes or foreign exchange markets (forex) depends on your risk tolerance and trading style. 
• There are several attributes that you must compare. These include leverage, volatility, and market trading hours. 
• Generally, the equities markets, such as blue chip stocks and index funds, are more suited to a buy-and-hold investor. On the other hand, fast-moving traders prefer forex.

What Are Stocks?

Before we start our stock trading vs. forex trading guide, it is essential to understand the two. First, we will take a closer look at stocks. In simple terms, stocks are investments in a particular company. It represents the ownership of a piece of a company’s assets and future earnings. When you purchase a stock, you buy a small part of the company. This means you can enjoy profits if the company becomes more valuable.

There are two types of stocks: publicly owned and privately owned. Publicly traded stocks are traded on exchanges such as the New York Stock Exchange (NYSE) and Nasdaq. The stocks are listed here when the company goes public. Privately owned stocks work using the same principle. 

However, these are not part of an exchange and are more volatile. The volatility is because these stocks are associated with startups and companies not publicly listed. Furthermore, each investment must be approved by the issuing company. Startups generally offer private stocks to employees, which can be used as compensation. These are especially handy when cash flow is a concern in new companies.

Your capital is at risk. Other Fees Apply 

The Stock Market

The stock market is a collection of exchanges that trade stocks in various companies. Traders can purchase and sell shares to others through this network of exchanges. This is similar to buying and selling currencies. Unlike the foreign exchange markets operating 24 hours a day, the stock markets are usually open weekdays. Furthermore, these markets operate only for 8 hours a day, between 9:30 a.m. and 4 p.m.

The volume traded in stock markets is typically around $200 billion. This is considerably less than the $5 trillion traded in the forex markets. If you wish to be part of these markets, you could consider learning how to trade stocks or forex.

What Is Forex?

The word ‘forex’ is a combination of the words’ foreign currency’ and ‘exchange’. Currencies around the world increase and decrease in value on a daily basis. As such, traders profit by buying a particular currency, waiting for its value to increase, and then exchanging it for profit. This is the gist of forex trading in a nutshell. 

The price at which traders buy or sell currencies depends on their exchange rate. The exchange rate is the value of one currency against the other. For example, the value of the 1 EURO equals $1.21, which means it takes $1.21 to purchase 1 EURO.

 Forex trades are performed millions of times on a daily basis by individual traders and corporations. On average, the forex markets trade upwards of $5 trillion per day. However, the exchange rate is not fixed and keeps changing. This is because it depends on supply and demand. Several other factors impact exchange rates, such as world and geopolitical events.

78% of retail investor accounts lose money when trading CFDs with this provider.

Stock Trading vs. Forex Trading: Comparing The Two

The stock and forex markets are two of the most popular financial markets. However, there are key differences between the two. The first difference is the volume of assets. Forex trading volumes are off the charts, offering up to 330 major and minor currency pairs. Trading volumes often reach upwards of $5 trillion per day.

This doesn’t mean the stock markets are less popular and offer endless opportunities to traders. Another critical difference between the two is liquidity and volatility. Stock traders use the ‘buy and hold’ method. This helps them estimate fluctuations in volatility and avoid risks.

Meanwhile, forex markets focus on high-volume trades and activities in a relatively short period. This makes liquidity highly effective in these markets. This is why, if you are looking for short-term trading, forex markets may be ideal for you.

Forex vs. Blue Chip Stocks

The foreign exchange (forex) market is the world’s largest financial market. Traders are attracted to the forex market thanks to its high liquidity and round-the-clock trading. The amount of leverage on offer also makes the market an attractive prospect.

On the other hand, blue chip stocks are stocks of financially sound, well-established companies. These stocks historically operate profitably even during challenging economic situations. They also have a history of paying dividends to holders. Blue chip stocks are considered less volatile than other investments. They are often used to provide steady growth potential to investor portfolios.

 Let’s look at some key differences to remember when comparing forex with blue chip stocks.

Volatility

Volatility refers to the short-term price fluctuation seen in markets. Day and short-term traders rely on volatility to profit from quick price swings. However, most traders prefer volatility to be at a minimum, so there is minimal risk to their investments. Volatility is one reason why short-term traders are attracted to the forex market. Meanwhile, long-term investors prefer the stability of blue chip stocks.

Trading Hours

Another factor to consider when choosing between forex and blue chip stocks is the trading hours of each. Stock trading is limited to exchange hours, generally 9:30 a.m. to 4 p.m. Eastern Standard Time. Additionally, they can be traded only on weekdays (Monday-Friday), with the exception of public holidays.

On the other hand, the forex market is open round the clock from 5 p.m. EST on Sunday to 5 p.m. EST on Friday. The markets open in Sydney and then travel worldwide to Tokyo, London, and New York. The flexibility to trade during US, Asian, and European markets, with excellent liquidity, is a big bonus for traders.

Leverage

The third factor to take into consideration is leverage. In the US, traders can typically access 2:1 leverage for stocks. On the other hand, the forex market offers significantly higher leverage of up to 50:1. Is such high leverage ideal? Only sometimes. It allows traders to build equity using a minimal investment. However, leverage can also decimate a trading account.

Forex vs. Indexes

Indexes are a combination of stocks that can be used as a benchmark for a particular sector or the broader market. In the US, major indexes are the Dow Jones Industrial Average, The Nasdaq Composite Index, the Standard & Poor 500 Index, and the Russell 2000.

These indexes give traders an important method of tracking the market’s overall movement. You can get market exposure through a number of products. These include ETFs based on stock market indexes such as the SPDR S&P 500 ETF Trust and the Invesco QQQ.

Other popular features based on underlying indexes include stock index e-mini futures. E-minis boast of strong liquidity and have become quite popular among short-term traders thanks to favorable daily price ranges. E-minis, including the e-mini S&P 500, e-mini Nasdaq 100, the e-mini Russel 2000, and the mini-sized Dow Futures, are traded around the clock on transparent, all-electronic networks.

Let’s look at some factors to take under consideration when comparing a forex investment with one playing an index.

Trading Hours

E-minis trade nearly around the clock. However, trading is stopped for an hour so that institutional investors can value their positions. Additionally, the volume may be lower than in forex markets, and liquidity during off-market hours could also be a concern.

Volatility

Short-term traders can take advantage of the volatility and liquidity of e-mini contracts. Let’s assume that major equity index futures trade at an average daily notional value of $145 billion. This exceeds the combined traded dollar volume of the underlying stocks. The average range in price movements of e-mini contracts gives traders ample opportunity to profit from short-term moves.

While the trading volume is lesser than forex markets, e-minis give many advantages to forex traders. This includes liquidity, daily average price movement quotes, and trading outside regular market hours.

Leverage

Those trading futures can use a significant amount of leverage, similar to what is available to forex traders. With futures, the leverage is referred to as margin. This is a mandatory deposit that brokers can use to cover any account losses. The margin requirements are set by the exchange where the contracts are traded. These requirements can be as low as 5% of the original contract’s value.

Brokers can also choose to require higher margin amounts. Like forex, futures traders can trade in large positions by making a small investment. While you may stand to make massive gains, there is always the risk of huge losses.

Stock Trading vs. Forex Trading: What’s More Profitable?

Understanding Stock And Forex Trading

Before we go any further in our stock market vs. forex trading comparison, let’s look at some basic facts. Stock trading is the process through which you buy or sell company shares intending to make a profit. Most stock investors hold on to their shares for months or years. As such, stock trading is ideal for long-term investors. As a trader, you can make profits in two ways while trading stocks.

If the value of the stock in question increases, you can sell the shares and turn a profit. Let’s understand this with an example. Let’s assume you have purchased 10 shares worth $200 each. When the price of these shares increases to $300, you decide to sell them. This means across 10 shares, you have made a total profit of $1000.

The second way to make profits is through dividends. Many stocks in the market pay dividends. When paying dividends, the company distributes some of its profits to shareholders, typically every quarter. This gives traders an avenue to generate passive income. 

Now, let’s move on to forex. The forex market is the largest trading sector in the world. According to estimates, around $6 trillion worth of currencies are traded every day. The idea behind forex is to assess whether the exchange rate between two currencies will increase or decrease.

For example, if GBP/USD is priced at a rate of 1.16, you need to predict if this would increase or decrease. When the correct movement of a forex pair is predicted, you stand to generate a considerable profit. Another key difference between stocks and forex is that the latter trades 24/7.

Which Is More Profitable?

So which of the two is more profitable? The forex market experiences significantly lesser volatility. Major currency pairs rarely move more than 0.5% in a single day. However, stocks are far more volatile and register significantly more movement over the course of a trading day. This movement is even greater over weeks or months. As such, there is little correlation when it comes to the relation between stocks and forex.

For example, the stock markets are directly correlated to the strength of the economy. However, when it comes to forex, currency exchange rates depend on factors such as interest rates and geopolitical events.

Where To Trade Stocks And Forex In 2024

Next in our comparison between stock trading and forex trading, is where you can trade stocks and forex. We have considered several factors such as cost and regulation to compile our list. 

eToro – Regulated Broker Offering Access To Thousands Of Stock And Forex Markets

The first option to consider when selecting a broker to trade stocks or forex is eToro. eToro is considered highly user-friendly thanks to its sleek interface and small minimum deposit requirements. The minimum deposit is only $10 for clients based in the US and UK.

Those based outside these regions must make a minimum deposit of $50. eToro gives you access to over 2500 stocks. These cover a range of markets, including the US, UK, Germany, France, Italy, and others.

The minimum stock trade on eToro has been fixed at $10. This applies to all stocks, regardless of their price. When it comes to forex, traders have access to over 48 pairs. These consist of major and minor pairs, although it also supports exotic pairs.

This includes pairs such as USD/ZAR and USD/TRY. Forex on eToro can be traded on a spread-only basis. EUR/USD spreads start at 1 pip, with higher spreads on more exotic pairs.

Other Offerings And Features

Regarding minimums, eToro supports lot sizes of 0.01. This means you can access lots of 1,000 units instead of the usual 100,000. The platform also supports leverage. As such, you can trade a 0.01 lot of currency at 1:30 leverage with a stake of just $33.33. Besides stocks and forex, eToro offers commodities, crypto, ETFs, and indices.

Opening an account with eToro is quick and can be completed within minutes. Once the account is verified, you can make your deposit. eToro accepts several payment methods. These include PayPal, debit and credit cards, Skrill, Neteller, WebMoney, and bank wire transfers. The platform is also highly regulated by the ASIC, SEC, FCA, and CySEC.

eToro also offers features such as Copy Trading and SmartPortfolios. Copy Trading allows traders to copy the successful trades of experienced stock or forex traders on eToro. Meanwhile, SmartPortfolios allows clients to invest in a basket of stocks handpicked by eToro. What’s more, Smart Portfolios is professionally managed. Both these offerings come without any additional fee attached.

Pros And Cons Of eToro

78% of retail investor accounts lose money when trading CFDs with this provider.

Capital.com – One Of The Best Brokers In 2024 

The second broker in our stock trading vs. forex trading guide is Capital.com. Capital.com is easily one of the best brokers to trade stocks, forex, and commodities. You can access several commodities on the platform. These include Brent crude oil, natural gas, and WTI.

That’s not all; the platform currently ranks as one of the top stock trading platforms in the market. Traders on the platform can access over 5000 stock CFDs from exchanges located in Europe, Asia, and the US. Apart from ETFs, indices, and crypto, it also supports forex markets.

You can open an account on Capital.com in a relatively straightforward way. The process takes only a few minutes, and the minimum deposit is a reasonable $20 using an e-wallet or debit/credit card. However, bank transfers are subject to a significantly higher minimum deposit of $250. Capital.com is also heavily regulated by the FCA, CySEC, ASIC, and NBRN. This gives traders the confidence to trade without worrying about regulatory compliance.

Pros And Cons Of Capital.com 

AvaTrade 

The next broker in our stock trading vs. forex trading guide is AvaTrade. AvaTrade is one of the most popular brokers of 2024. The platform is highly regulated and operates in 9 jurisdictions. You can easily open an account on the platform with a minimum deposit of $100 and begin trading.

The popular trading platform gives you access to technical indicators and trading tools. These can be accessed through AvaTrade’s web platform and mobile application. Additionally, the platform also offers MetaTrader 4 and MetaTrader 5.

The CFD trading broker offers a plethora of assets, including crypto, forex, stocks, and indices. It also accepts several payment methods, such as bank transfers, PayPal, and debit/credit cards.

Pros And Cons Of AvaTrade 

Best Stocks And Forex Pairs In 2024

Let’s get to the next section of our stock trading vs. forex trading guide. This section will look at the most popular stocks and forex pairs. First, let’s look at the most popular stocks. 

• Coinbase – An excellent volatile growth stock for high-risk traders. 
• Meta Platforms – A leading tech stock with a market correction of 50%.
• Tesla – One of the most popular stocks among retail investors. 
• Devon Energy – The stock has made gains of over 140% in 12 months of trading.

Next, let’s move on to the most popular forex pairs. 

• USD/TRY – A volatile forex pair ideal for high-risk traders.
• USD/ZAR – Another volatile currency pair that has appreciated in value.
• GBP/USD – A prolonged decline since 2016. May appeal to long-term traders. 
• EUR/USD – The most traded currency pair in the world.
• USD.CHF – A stable currency pair for highly volatile periods.

Top Stock And Forex Pairs Reviewed

Now, let’s take a closer look at the top stocks and forex pairs, starting with stocks. 

Coinbase

Coinbase is ideal for traders in the market for volatile stocks. The company was founded in 2012 and went public in 2021. Since its founding, Coinbase has established itself as one of the largest cryptocurrency exchanges in the world. The platform currently boasts of over 108 million users.

Coinbase is also highly volatile, which could suit short-term traders. Let’s look at an example of Coinbase’s volatility.

In one week of trading, the Coinbase stock witnessed highs of $69 and lows of $62. Over the same period, the stock surged by 8% and then dropped by 7%. If we look at Coinbase from a long-term perspective, it has been nothing short of a disaster. Since its IPO in 2021, Coinbase’s stock has dropped by 80%.

The primary reason behind this significant drop is the ongoing crypto bear market. The bear market has seen major cryptocurrencies such as Bitcoin and Ethereum drop by over 70% since 2021.

Meta Platforms

The S&P has seen a significant decline over the past year, falling 13%. However, Meta Platforms has seen an even more significant decline. Meta Platforms, formally traded as Facebook, has seen an unprecedented decline in its stock.

In fact, the stock has plummeted by over 50% over the past 12 months. An even more alarming fact is that the Meta Platform’s stock is down over 7% over a five-year period. 

In the same time frame, the S&P 500 has registered a growth of nearly 60%. As such, it is clear that Meta Platforms has consistently underperformed compared to the broader stock market. However, it is worth remembering one fact when looking at this stock.

Meta Platform is the parent company of some of the most prominent social media platforms in the world. These are Facebook, Instagram, and WhatsApp.

It is estimated that across these three platforms, over 2.8 billion people use at least one Meta-affiliated platform or product each day. This means Meta Platforms has access to over 35% of the global population on a daily basis. This is a hugely significant figure. As such, a discounted entry price of over 50% could appeal to traders. The Meta Platforms stock could appeal to value traders.

Your capital is at risk. Other Fees Apply 

Tesla

Tesla is easily one of the most popular stocks for retail investors to trade. The company was founded in 2003 and has established itself as the largest car maker globally. The company is best known for its electric vehicles. However, the stock has several other growing divisions.

These include a proprietary artificial intelligence (AI) that powers its driverless car technology. The company is also involved in building mega-watt batteries, charging stations, and solar energy.

The company went public in 2010, choosing to get listed on the NASDAQ exchange. Since its listing, Tesla has established itself as one of the largest companies in terms of market capitalization. Let’s look at some numbers to understand the sheer scale of its growth. Since its IPO, Tesla’s stock has registered a staggering growth of over 20,000%. In August 2022, Tesla shareholders voted for a 3:1 stock split. This made the Tesla stock more affordable, leading to a flood of new investors.

There are several brokers that support fractional ownership, allowing you to invest in stocks such as Tesla. If you wish to invest in Tesla, you can do so through eToro, a platform that supports fractional trading. This means you can invest as low as $10 into the Tesla stock instead of paying over $250 for a full share. The Tesla management is also discussing the introduction of a dividends policy. However, there needs to be more clarity regarding when.

The Tesla stock is an attractive option for traders thanks to its significant returns. In over 5 years of trading, the Tesla stock has generated returns of over 1000%.

Your capital is at risk. Other Fees Apply 

Devon Energy

Devon Energy has managed to make gains of over 140% in just 12 months of trading. The stock is ideal for short-term investors who are looking for something offering above-average gains. The reason behind Devon Energy’s considerable gains is the sector in which it operates: Oil.

The company was founded in 1971 and is based in the United States. It specializes in hydrocarbon exploration and has benefited immensely from soaring oil prices.

This is because surging oil prices allow oil stocks like Devon to generate significantly higher margins. Let’s look at some numbers related to the stock. Over the past 12 months, Devon Energy has been one of the best-performing stocks on Wall Street. It has managed to make gains of over 140% in such a short period. For comparison, the S&P 500 has registered a 13% decline during the same period.

Devon Energy has generated significant capital gains over the past year. What’s more, it has also become one of the top dividend payers in the market. As of writing, the Devon Energy stock is offering an annual dividend yield of 10.66%. The firm also carries a P/E ratio of 6.41. This is quite low considering the amount of growth the company has generated over the past year.

Your capital is at risk. Other Fees Apply 

Forex Trading

Now, let’s take a look at some of the most popular forex pairs you can trade.

USD/TRY – A Volatile Forex Pair Ideal For High-Risk Traders

Major pairs in the forex market are the EUR/USD and the GBP/USD, preferred by most traders. Another currency pair that attracts high-risk traders is the USD/TRY, which ranks in the exotic category of currency pairs.

This is because the Turkish Lira is an emerging currency. As a result, demand for the currency on a global stage is negligible. This means traders should expect extreme volatility when trading a pair like the USD/TRY.

The USD/TRY currency pair is one of the most volatile pairs in the forex market. On the one hand, the USD continues to get stronger in response to economic conditions. On the other hand, the Turkish Lira is on a continuous downward trajectory. This decline is thanks to the state of the Turkish economy and the spiraling inflation the country is facing.

An example of the level of inflation faced by Turkey was witnessed in 2022. In July 2022, it was reported that the Turkish Lira saw inflation levels as high as 80%, year-over-year. Over the past 12 months, the USD/TRY currency pair has increased by over 120%. To explain in simpler terms, the USD gets 120% more Turkish Lira compared to a year prior.

78% of retail investor accounts lose money when trading CFDs with this provider.

USD/ZAR – Another Volatile Currency Pair That Has Appreciated In Value

The USD/ZAR currency pair is similar to the USD/TRY pair. This is because, like the USD/TRY, the exchange rate between the US Dollar and the South African rand is highly volatile. However, this currency pair continues to maintain an upward trajectory.

Over the course of time, the US Dollar has consistently outpaced the South African rand. For example, in 12 months, the USD/ZAR trading pair has registered an increase of over 21%.

If we want to look at a longer time frame, we can look at a five-year period. Over this period, the USD/ZAR currency pair has appreciated by nearly 35%. Positive extended trends such as these will appeal to long-term currency speculators. These long-term traders are content with keeping positions open for months and even years.

78% of retail investor accounts lose money when trading CFDs with this provider.

GBP/USD – A Prolonged Decline Since 2016. May Appeal To Long-Term Traders

Forex trading is not typically associated with longer-term plays. However, the gradual decline of the GBP/USD pair could interest positional traders. As we noted in our stock trading vs. forex trading comparison, positional traders often tend to keep a currency position open for more than a year.

This is often the case when a forex pair is showing an extended upward or downward trend. In the case of the GBP/USD currency pair, it is showing a prolonged downward trend. Let’s understand this decline by going into a little more detail. In 2016, the GBP/USD currency pair was trading at more than 1.55. This meant that for every US Dollar traded, you would get $ 1.55 in return. Now, remember, this was in 2016.

In 2022, 1 British pound got you just $1.14, which is even lower today. These numbers represent a decline of over 25%. This may not feel like a significant downfall. However, when you factor in the strengths of both currencies, it definitely is. Like the euro, speculative traders may find the British pound heavily undervalued. More crucially, where the British pound can find a support zone still remains to be seen.

78% of retail investor accounts lose money when trading CFDs with this provider.

EUR/USD – The Most Traded Currency Pair In The World

We have already discussed several currency pairs popular with different types of traders. Now, let’s look at the most popular trading pair in the forex market, the EUR/USD pair. The EUR/USD pair is the world’s most widely traded forex pair. This should come as no surprise given the size of the United States and the European Single Market. This is not just in terms of population but also economic strength.

The EUR/USD currency pair has been nicknamed the Fiber. It is widely considered the most stable forex pair when it comes to volatility. However, 2022 saw this reputation put to the test. As the United States Dollar continues to grow stronger, alternative currencies, including the euro, are witnessing a steady decline. The decline is so much that the EUR/USD pair has dipped below parity.

This decline means that the euro was worth less than the US Dollar at one point. However, the currency has since made a recovery. However, in 2022, this currency pair declined by over 16%. At current prices, long-term forex traders might consider the euro to be oversold. A return to the levels of October 2022 may require a 20% upside.

78% of retail investor accounts lose money when trading CFDs with this provider.

USD/CHF – A Stable Currency Pair For Highly Volatile Periods

The USD/CHF trading pair consists of the United States Dollar and the Swiss franc. Switzerland is a relatively small economy when we look at it from the global economic perspective. However, the country is viewed as a safe haven, especially in times of economic upheaval.

As a result, the Swiss franc has established itself as a solid and reliable currency. Over the past year, the USD/CHF trading pair has registered a decline of over 7%.

This is modest volatility when compared to other currency pairs, such as the GBP/USD. However, the currency pair has been highly stable if we look at things in a longer time frame. As such, the pair could appeal to low-risk traders.

Conclusion

And that wraps up our stock trading vs. forex trading comparison. In this comparison, we have looked at the mechanics of each market in great detail and found a clear pattern. Stocks are more popular with long-term investors. Meanwhile, forex is favored by short-term market speculators and traders. 

Regardless of whether you prefer stocks or forex, you require a suitable broker to help you navigate the markets. We recommend eToro as the platform you should select. The platform is trusted and highly regulated, allowing you to trade thousands of stocks and 49 forex pairs.

Additionally, both stocks and forex can be traded at 0% commission on eToro. Account creation is simple and can be completed in minutes. Furthermore, you need only $10 to begin trading on the platform.