The UK’s stock and forex trading industries have been an integral part of the country’s economy for centuries. While both involve buying and selling assets, some significant differences between these industries should be noted. This article will discuss critical differences between the UK stock and forex trading industries, exploring each in detail so readers can better understand their distinct characteristics.
Types of assets traded
The most apparent difference between the UK’s stock and forex trading industries lies in the assets traded. In the stock market, investors primarily trade shares of companies listed on a stock exchange. These can be large blue-chip companies, small start-ups etc. Forex traders, however, focus mainly on currency pairs. The forex market is a 24/7 global network which enables its participants to trade currencies from different countries against each other at prevailing exchange rates.
Beyond stocks and currency pairs, forex traders also have access to certain commodities such as gold, silver, and oil for speculative purposes. While some stocks may offer exposure to commodity prices (such as energy stocks), forex traders can take direct positions on commodities without purchasing the underlying physical asset.
Trading hours
The stock market operates during specific trading hours, usually from 9 am to 5 pm GMT, Monday through Friday. Therefore, traders are limited to how long they can buy and sell stocks throughout the day. On the other hand, the forex markets are open 24/7 with no restrictions on when trades can be placed or executed, making the forex market one of the most liquid. This flexibility gives forex traders greater freedom to trade whenever they wish. Moreover, forex traders can also take advantage of global events that may not coincide with traditional stock market hours.
Leverage
Another critical difference between forex and stock trading is the availability of leverage. Leverage allows forex traders to control a large amount of money in the forex market with only a small deposit, which can be incredibly useful for maximising returns. Stock traders typically don’t have access to such high leverage levels as forex trading does. Additionally, forex traders can take long and short positions, meaning they can make profits regardless of whether the forex market increases or decreases in value.
Fees
The fees associated with stock trading are generally higher than forex trading due to the presence of commissions on each trade which stock brokers charge their clients. On the other hand, a forex broker in the UK typically does not levy additional charges beyond the spread they make when executing trades. It makes forex trading relatively inexpensive compared to stock trading, especially if you plan to execute multiple daily trades. Furthermore, forex traders do not need to pay any taxes on their forex trading profits.
Market size
The world’s largest and most liquid financial market is the forex market, dwarfing the stock markets regarding trading volume. According to Bank for International Settlements, forex trades amounted to $6.6 trillion per day during April 2019, which was over three times larger than the total value of all transactions in global equities markets during the same period. This vast size gives forex traders unique advantages, such as having more liquidity and better pricing.
Advantages of trading forex over stock
The forex market offers unique advantages to traders that the stock trading industry cannot match. For traders to make the best decision, they must assess the benefits and drawbacks of each industry.
Increased liquidity
The forex market is the most liquid of all financial markets, making it easier for traders to enter and exit trades quickly and at competitive prices. It allows traders to take advantage of even the slightest movements in currency pairs, which can be highly profitable if done correctly.
Lower transaction costs
Unlike the stock market, a forex trader doesn’t have to pay commissions or taxes when trading. Furthermore, since most brokers do not charge additional fees, traders can keep more profits and reduce overall costs.
Margin trading
Forex brokers typically offer higher leverage than stock brokers, which allows traders to use small investments to control large amounts of capital. It can be beneficial for maximising returns on a given trade, but it should be used cautiously, as trading on margin can also increase risk if not managed properly.
