It is advisable that if a person owns excessive money and he does not want to get it deposit in the bank or having saving bond then he should avail the option of investing money in foreign exchange or stock market. These two options are quite complex and if you want to have success in such markets then you have to do a complete search before investing in such market. The chances of having high return on investment in both the markets are quite high but at the same time you cannot forget the potential for losses too. The difference between these two markets is quite clear.
- Forex is mainly an over the counter market and it is a place where the buyer and seller exchange the currencies of different countries. The reason behind this activity is to earn profit because when the currency of one country is converted into another country the people get profit from the transaction. Whereas stock market is quite different in which buying and selling of stock takes place actually and these are traded as a single unit that is known as share. The foreign exchange involves the buying and selling of currency pairs.
- Volatility is a common factor between these two markets that gives the element of risk too. It often happens that the stock prices change quickly due to the bad economic condition or due to some other factors. Then the investors, who hold the stock of lowering down values, try to sell them as early as possible to avoid high loss. Same is the case with the Forex market. When a sudden collapse of some foreign governments occurs or the value of a currency goes down this market gets affected. So it means that both the markets have high degree of volatility factor.
- When it is talked about the share market then we come to know that it provides protection to its investors in the form of some government regulations. For example:- In US, Security and Exchange Commission have been created to check the activities of this market and the professionals of this market. So the investors are protected to some extent in this market. Whereas in Forex, the people belong to different nations and currencies of different nations are involved so it is hard to implement some regulations effectively in this market as compared to share market.
- It is a matter of fact that the investors can get involved in a foreign transaction quite easily than the stock transaction. The reason behind this phenomenon is that in case of foreign exchange, time zones of the nations are different across the world so you can engage in this activity for 24 hours a day and 5 days in a week. It does not matter what is your location but in case of a stock transaction, you are restricted to conduct transaction or trading the share only during normal business hours throughout the week.
So, these are the main areas where Forex and stock markets differ.