Last Updated: January 20, 2022
We all know that Forex and the stock market have similarities when it comes to trading. This could be seen when you want to trade those markets and you see a chart that represents the price of an asset in a stock market or a currency in the Forex market, to be precisely such as candlestick patterns, bar charts, and other tools to define the price. But what are the differences between the stock market and the Forex market?
From the book that I read, that is from Dicks (2010, p.
7-9), he explained in his book that:
1. FX: Open from Monday-Friday for 24 hours which is 24/5
This means that you are free to trade 24/5 but I would not
recommend it as it could lead you to overtrade or you might have hallucinations
that could put you in a bad trade. But of course, there are opening and closing
hours where the opening market is around 4 a.m in Western Indonesia Time (WIB)
and the closing hour is the same as the opening market but it happens on
Saturday.
Stock market: Open from Monday-Friday but have limited time
In the stock market, you could only buy for a limited time.
Because I am based in Indonesia, I am going to use Indonesia Stock Exchange
(IDX) as an example. Let us say that there is a person called Budi who wants to
have BBCA stock, that is, Bank Central Asia code. What he has to do is buy the stock between 9 a.m. the opening time to around 3 p.m. the closing time.
This means Budi has 6 hours to decide if he wants to buy BBCA stock.
2. FX: Some brokers have free commissions of charge yet also the opposite brokers who will charge you with commissions
Well, in Dicks' book (2010, p. 7) it is written that there
is no commission is charged by the brokers but I think it is just about how FX
brokers want to do whether they want to charge a commission or not and in
Indonesia, a place where I was born, most brokers would charge a commission for
every trade that we trade.
Stock market: Charge commissions
Whenever we want to buy a stock, the brokers would charge a
commission in which could be seen on the confirmation purchase that we
have seen after we clicked the buy button. In Indonesia, for example, I use a broker
from bank A and then I open a mobile application provided by bank A to
click buy for specific stock that I want. After I clicked the buy button then the
trade confirmation would show up on your screen, detailing the price and
the broker commissions.
3. FX: Open order positions instantly
According to Dicks (2010, 7), in the Forex market, you could just
open orders right away in real-time. This means, when you open a buy trade
position then your position would be filled in real-time. Take, for example, Mr.
Bogdanoff is a Forex Trader, he just clicked the buy button on his phone or laptop
specifically for EUR/USD pair (which is around $1.12 to get €1), and then the
order he made would be filled instantly without having delay.
Stock market: Not executed instantly
As in the stock market, you would have to wait for the order positions you have opened in line with the price of a person who sold the stock that you want (remember in the stock market you could only open buy positions). This could be seen that if you want to buy a stock like BBCA and the price is 7375 IDR, then you would have to buy it to the closest price of a person who sold it like 7400 IDR. This means there is a gap price of 25 IDR. So if you want to get 7375 IDR, you would have to wait until there is a person who sold it at that price.
4. FX: Could open for sell positions
The good thing in the Forex market is that in this market you could
just open sell positions in any currencies you may want to trade. A good
example of this is when you see GPB/USD chart and after you have analyzed
it you assume that it would go down. Thus, you open a sell position for
GPB/USD. In short, you have chances to profit from opening a sell position.
Stock market: Only buy positions
Yes, in stock you could only buy positions of stock but
could not open sell positions because when you sell in the stock market it means
that you are going to sell your stock if you have it. This means you must
have bought it first before you can sell it.
Conclusion
Whether you want to choose FX or stock market to trade or
you might want to trade them both it is all up to you. In this article, I only
share what I have experienced, so if there is something amiss and wrong then
feel free to correct me. Thank you.
Written by Andre I.
Reference
Dicks, James. 2010. Forex Trading Secrets: Trading
Strategies for the Forex Market. New York: McGraw Hill.