28. Relation between Forex and Stock Markets

The equities market or the stock market is the market for trading stocks. Stock shares either public or private are examples of instruments that are traded in the stock market. Let us try to understand how stock market is different from Forex market. There are many alternatives available in stock market for trading. Whereas in Forex we know that there are currency pairs and it makes it very easy to choose the pair you want to trade upon. Imagine if you had 10000 and more options available. It would have been really difficult to choose from. Only thing with Forex is that you need to be up to date on the market conditions. There are number of differences between the Forex market and Stock market. Below is a glance of a few of them.
Trading Hours
Most of the stock markets operate for 8 hours and then there is a downtime until it opens the next day morning. Each Stock exchange follows a strict schedule and has its opening and closing time fixed. When compared to stock markets, forex markets don’t have any downtime and they operate 24 hours of the day across multiple sessions in different parts of the world.
Marketplace
As we already know, Forex market is not a centralized market place. It is an over the counter (OTC) market. Whereas, stock markets are centralized and there is a central exchange through which all trades happen. Additional Cost
Stock markets always require additional costs and commissions to be paid to the middleman. There is always a broker between the buyer and the seller. In Forex it is not always necessary to have a broker. For example in spot trades, traders can directly buy or sell. Thus, there is no additional commission to be paid. Even though there are brokers involved in Forex trading, in most cases they don’t charge any additional commission as they make money through the spread.
Complexity
As we already mentioned, Forex trading is pretty simple when compared to Stock markets. Trader has to know about how the major currency pairs are doing and he can pick the currency pair he wants to trade upon. In Stock market the trader has to choose from thousands of options available and this makes it complex.
Speed
Forex trades can be quickly executed. Most of the traders use programs that can instantaneously execute the trades on trader’s behalf. In stock trading the trader has to get his trade to the trade floor and then it may again take up time before it gets executed.
It is often easier for a trader to start forex trading with limited funds available due to the leverage and high liquidity. As with stock market, you don’t have to worry about each company and its shares before deciding upon making an investment. With Forex, you need to be aware of the economic and technical conditions that can affect the major currencies and it is as simple as that.

article28_1If you plot the graph for the volume of trades in Forex and Stock market you would see that the graph looks like the one shown below. There is a big difference in the average trading volume for Forex and Stock market.

article28_2Now let us see the impact of stock or equities market on the Forex market. That is a pretty easy to understand concept. Stock market in a country impacts its economy. For example if the stock market in US goes up, obviously the foreign investors would be attracted towards US and they would sell their domestic currency and buy US Dollars. Which in turn boosts the economy and hence high impact on the Forex market. Similarly if share prices fall due to recession or any other slowdown, the economy is impacted and the value of its currency would go down.
So, now you know the advantages of Forex market over Stock Market. You understand how they are linked and how stock markets affect Forex Markets. Forex market offers huge benefits that can save lots of money while being stress free.

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