Are you thinking about joining the exciting world of trading? Then you’re probably wondering how to choose between forex vs. stocks.

Trading can be confusing, especially if you don’t know where to start. Only a small percentage of people actually become successful in trading — and the failings often come down to a lack of knowledge. If you’re committed to trading, and you learn the rules of the game, you can increase your chances of success. However, the first step is to decide what kind of trading you’ll do.

In this guide, I’ll break down the differences between forex versus stocks to help you make the right choice. Keep reading before you delve into the world of trading!

What is Forex?

If you’re considering becoming a trader, chances are you already know the basics about what forex is. However, it’s worthwhile to take a closer look as we compare and contrast forex vs. stocks.

Forex stands for foreign exchange, and it’s the largest exchange in the world. The goal of forex trading is exactly the same as in stock trading. You’re aiming to make money by buying currency and then selling it as a higher price than what you paid for it. Forex traders use platforms and brokers like stockbrokers do.

However, forex trading becomes complicated because you have to factor in things like currency exchange rates. Forex currencies show up in pairs so you can see what the exchange rate is. Some forex pairs trade more frequently than others.

What are Stocks?

Stock trading is simpler than forex trading in some ways. With stock trading, you’re aiming to make money with your buying and selling choices, but you’re always working in the same currency.

Of course, that doesn’t mean it’s easy to find success as a stock trader. There’s still a lot you’ll need to learn. You should know how stock prices get set, how to avoid scams, and much more. But with stock trading, there aren’t as many moving parts as in forex trading.

Forex vs. Stocks

So, which one is better: forex or stocks? It all depends on your individual needs and desires as a trader. You need to have a passion for learning and commitment to education, no matter which kind of trading you choose. However, many traders find that one type of trading is a better fit for them. Let’s take a look at the pros and cons of forex vs. stocks.

Forex Pros

Forex may be complex, but it has its benefits. Here are the things that make people want to become forex traders.

Leverage

If you’re stock trading, you usually need to meet a few requirements before you can start trading with leverage. You’ll also only be able to trade with one to two leveraging, most of the time.

However, forex traders can start trading with leverage as soon as they open their account. The amount of leveraging you can work with depends on the country you’re trading in, but it’s always higher than stock leveraging.

Timing

The forex market also has more flexibility when it comes to the timing of your trading.

Technically, you can trade on the stock market 24/7 by making only trades. But the U.S. market still operates within a set number of hours. The forex market is less limited because there’s always trades available in different time zones.

Forex Cons

What are the drawbacks forex traders have to work with? Let’s take a look.

Paired Currency

In the forex market, your currencies always come in pairs, as mentioned above. This means you’ll need to consider factors like the economy of the country where you’re trading and the economy of the country you’re trading against.

Factoring in the economies of two different countries makes it harder to make the best trading decisions. The forex market also tends to be more reactive to changes to economic and political situations around the globe. The U.S. stock market will change with some with these factors too, but it tends to stay more stable.

Stock Pros

Let’s take a look at the things that might make you choose stock trading over forex trading.

Single Currency

Working with a single currency means you’re only concerned about the economic health of a single country: the United States. You only have to consider whether a stock’s value is going to rise or fall.

Analyzing a single currency can help you make trading decisions faster. You also won’t have to worry as much about how global events might affect your decisions.

Gradual Trends

In the forex market, success hinges on making quick decisions. However, in the stock market, the trends don’t change as fast. You have more time in which to decide what’s right, and you can track the trends across a period of time to help inform your decision.

Stocks also make good long-term investments. If you don’t want to be a full-time trader, you can invest in some promising stocks and let them grow for decades. This strategy doesn’t work on the forex market.

Stock Cons

Although it’s simpler than the forex market, the stock market has its own issues to navigate.

Price Sensitivity

If you’re trading in a company with a small number of shares, the price might react when someone buys or sells a few thousand of those shares. This sensitivity creates unpredictable changes that you’ll have to work with.

However, on the forex market, huge trades rarely impact the prices, since the market itself is so massive.

Making the Right Choice

Forex vs. stocks: which one is right for you? There’s no simple answer. Your decision depends on your goals as a trader and what you feel comfortable with.

Some people love the fast-paced excitement of the forex market. Other people prefer to take their time to plan stock market trades using trend data. If you try one type of trading and it doesn’t seem to fit well, you can try the other one next.

One more complication when you become a full-time trader is paying taxes. If you want to know more about how to pay taxes as a self-employed trader, check out this guide.