Difference of Forex and Stocks. Table of Contents
Invest in both FX and Stocks with XM
With XM, you can invest in more than 1000 financial instruments online and they include Forex and Stocks.
The Forex and Stock markets are both popular financial markets for both retail and institutional investors.
While you can trade in both markets with XM, the reality is that Forex market is more popular than the Stock markets.
In fact, the trading volume of Forex market in whole is the largest in financial markets.
In this article, we will explain the difference of Forex and Stock markets.
Main Differences of FX and Stock markets
Many people are worried about whether they should trade FX or stock when starting online investment.
After all, many start with FX that requires less initial investment, but traders can always diversify their portfolio to stocks, CFDs, options (forex options) and virtual currencies.
We have categorized FX and Stock markets in an easy-to-understand manner below.
| Forex | Stock Markets | |
|---|---|---|
| Object | Currency Pairs | Companies |
| Number of products | About 100 | More than 1000 |
| Price Factors | Monetary policy etc. (macro economy) | Corporate performance etc. (micro economy) |
| Payments of Interest | Everyday | Twice a year |
| Leverage | Up to 1:888 (in case of XM) | About 1:3 |
| Trading Hours | 24/5 | From 9 am to 3 pm |
In case of XM, you can trade Forex currency pairs and Stock CFDs, but not actual stocks.
For the list of available financial instruments and the trading conditions, please go to XM Official Website
When trading Forex and Stocks with XM, you can also benefit from XM’s bonus promotions.
1. The Markets You Invest
Since FX invests in foreign exchange, of course, it may have the implication of investing in the country rather than the currency of each country.
Many people want to invest in high yields on government bonds and interest rates.
In a sense, it seems that foreign exchange is investing in the world.
On the other hand, stocks are companies.
For office workers, there may be companies with which the stocks they invest in are routinely involved in their work, or companies that sell their favorite products.
In that sense, it seems that stocks are investing in a very familiar and small economy.
That is why Forex exchange is macroeconomic and stocks are microeconomics.
Trade Forex and Stocks with XM
2. Number of Financial Products
FX invests in currencies, but the actual currencies that can be invested are only about 30 countries.
You can invest in the world’s key currencies: the US dollar, the Japanese yen, the British pound, the European euro, the Canadian dollar, and the popular high interest currencies such as the Australian dollar, the NZ dollar, and the South African rand.
In addition to these, recently there are also FX brokers that can buy and sell Hong Kong dollars, Singapore dollars, RMB, Norwegian kronor, very high interest rate Turkish lira and Mexican peso.
However, the above currencies are called minor currencies, have low liquidity (trading volume), and are not stable.
Dealers of banks and brokerage firms rarely buy or sell, so it would be safe for individual investors to not get involved.
On the other hand, there are thousands of stocks to invest in stock markets.
Therefore, the stock trading tool has a screening function, and it may be difficult to narrow down the stocks.
However, there is a number of stocks that become big stock, and if you narrow down to your specialty, you will be able to narrow down the number of investment targets to about 20 stocks.
Specifically with XM, you can trade more than 1000 financial instruments all together including Forex, Stocks, Commodities, Indices and more markets.
3. Market Price Factors
The fluctuation factors of FX greatly depend on the monetary policy and economy of the country.
Therefore, if the Central Bank of New Zealand raises the interest rate, the New Zealand dollar will be bought greatly, and if the ECB (European Central Bank) eases monetary policy, the euro will be sold greatly.
On the other hand, in the case of stocks, corporate performance is a major factor in fluctuations.
Therefore, if the settlement of corporate account is higher than expected, it will be high every day.
And the stock price of affiliated companies may also become high.
In addition, global companies are linked to fluctuations in overseas stock markets, and exchange rates are involved.
For example, if the USDJPY depreciates against the yen, the stock prices of companies such as Toyota and Mazda will rise.
Similarly, a company that imports materials from abroad will have a large impact on the prices of crude oil and wheat.
XM has an Economic Calendar where you can stay updated of all important events that can affect prices of financial markets.
4. Payment of Interest (Dividend)
FX has a mechanism called a swap (point) to receive or pay an interest rate difference.
It receives or pays the interest rate difference divided by 365 days every business day.
To be the recipient of the interest rate differential, buy and hold a currency with a high interest rate.
It is a big attraction to be able to receive the interest rate difference, and also to receive the interest rate difference 888 times bigger to the investment funds with XM.
Stocks, on the other hand, have dividends.
This dividend can be paid once or twice a year (it varies depending on the company), and it has the great merit that you can get it only on the vesting date.
Of course, there are cases where it will be sold big immediately after acquiring the right, so the risk is high, but this is also a big attraction.
On XM’s trading accounts, you can see the swap points (interest rate) of all financial instruments on the trading platforms.
5. Market Trading Hours
FX can be bought and sold 24 hours on weekdays.
This is a proof that FX is popular with housewives, office workers and students.
On the other hand, stock trading is normally open from 9:00 to 11:30, and open from 12:30 to 3:00.
However, not surprisingly, stock trading involves night trading called PTS (private trading).
After-hours trading, it means after-hours trading that takes place between 17:30 and 23:59 (depending on the securities company).
There is also a daytime session, which takes place between 8:20 and 16:00.
The trading value is not so high, but the leveraged ETFs, which have the highest trading volume during the day, have a trading volume of about 230 million, which is showing a moderate excitement.
For the more information about the trading hours of each financial markets, please see the contract specification table on XM Official Website.
6. Use of Leverage (Margin Trading)
There is leverage in the merit of FX.
This is one of the biggest merits of FX that you can move 888 times the amount of investment funds with XM.
On the other hand, since stock trading has large price movements, margin trading allows you to trade up to 3 times your own money.
It is possible to use leverage that is appropriate for financial products.
Note that the trading conditions are different depending on the account type you choose with XM.
Visit the page here to see the comparison of XM’s all trading account types.
Summarizing the above, it is not possible to say unanimously which is better, FX or stock.
If you are a beginner in investment, why not try searching for your own investment product as follows?
- Start FX that can manage assets with small investment funds.
- Once you get used to the market, you can also trade the stock and determine which is better for you.
- Invest in more financial products, such as commodities and futures trading.
- Invest all financial products according to the situation and build a portfolio.
Please check XM official website or contact the customer support with regard to the latest information and more accurate details.
XM official website is here.
Please click "Introduction of XM", if you want to know the details and the company information of XM.
IronFX
Comment by Diletta
March 26, 2024
Awesome bonuses, good leverage. A few hiccups, but support rocks!