• Tue. May 28th, 2024

Forex vs. Stocks vs. Crypto – What’s the Best Trading Option?

While their general characteristics are similar, there are several key differences between forex trading, stock trading, and crypto trading. All three represent distinct markets that come with their own sets of risks and benefits.

If you’re considering putting your charting skills to the test but don’t know what trading platform is the best fit, we offer genuine insight below.

  • Use Oanda if you’re going for forex trading
  • Robinhood will be best for stocks
  • Use KuCoin for crypto trading

We’ll inspect all three options, what they mean, and how they compare to one another, ultimately showing how you can make their unique pros and cons work in your favor. Ready? Let’s start with the basics.

>> Use Oanda for Forex Trading

What’s the Difference Between Stocks, Forex, and Crypto Trading?

Forex vs stocks vs crypto, let’s look more in detail.

The Basics

Before examining the differences between the three trading markets, we’ll define each.

Forex Market

Forex (short for foreign exchange) involves buying and selling currencies for profit. While the forex market contains over 100 currency pairs, the major pairs, EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD, account for over 80% of the total trading volume.

>> Consider Oanda for Forex Trading

Cryptocurrency Market

Crypto trading is the buying and selling of any 1,000+ coins and tokens for profit. The most highly traded cryptocurrencies on the best crypto exchange platforms are large-cap coins like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Dogecoin (DOGE).

>> Consider KuCoin for Crypto Trading

Stock Market

Stock trading is the buying and selling of stocks in publicly traded companies. This is done over stock exchanges, the most popular NASDAQ and the New York Stock Exchange (NYSE).

Now that we’ve defined the three markets, we can examine their significant differences. Remember that understanding these can help you decide what option might work best for you.

>> Consider Robinhood to Invest in Stocks

Market Volatility

Volatility describes the potential for the price movement of a financial asset. For example, if a stock’s price fluctuates tremendously in a short period, it’s said to be highly volatile. Although volatility dramatically increases the profit potential, it also substantially increases the risk.

The Forex market is said to be the least volatile, followed by the stock market, and lastly, crypto markets can be highly volatile.

Market Trading Hours

While the crypto and forex markets are open 24 hours, the stock market has set trading hours. NASDAQ and NYSE, for instance, are open from 9:30 AM to 4:00 PM EST. Forex and crypto are better options if you plan on trading after work.

If you go for weekend trading, crypto could be the best choice for you as forex can suffer from low liquidity and poor spreads over the weekend, if available.

Regulation

These three markets are also subject to different degrees of regulation. While the stock market is heavily regulated, most foreign currency trading is done through offshore and online brokers that aren’t subject to US or Canadian regulations.

While this may concern some, the best forex brokers are usually reliable and trustworthy. Crypto is largely unregulated and, of the three, is the most susceptible to pump-and-dump schemes.

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Market Size

Forex is by far the largest market, totaling over $6.6 trillion in daily trading volume. To get a sense of its scale, consider that stocks and crypto usually do roughly $50 billion daily.

Blue-chip stocks and large-cap cryptocurrencies have more than sufficient volume for short-term or intraday trading. However, highly speculative plays like small-cap stocks and coins can suffer from liquidity issues which is something to keep in mind before diving in.

Market Risk

With higher risk comes higher rewards. It’s a truism that holds sway with all three trading options given here. If you don’t mind investing in highly speculative and volatile assets in search of a quick ten-bagger, the crypto market is the way to go.

Forex trading is better if you’re risk-averse and prefer more predictable markets. For something in-between, the stock market is considered a medium-low risk. Still, your outcomes will largely depend on what stocks you buy. Finally, the stock and crypto markets are much better suited for long-term investing than foreign currencies.

Margin Rates

Leverage or margin trading lets you trade using borrowed funds. In the US, stock leverage is typically capped at 2:1, meaning you can borrow up to twice your cash. By comparison, most forex brokers offer leverage from 20:1 up to 50:1.

Leverage is also heavily used in crypto markets and varies from one exchange to the next. Still, if you’re interested in margin trading, forex, and crypto markets certainly look like the best options.

>> Consider Oanda for Forex Trading

The Landscape of Stocks, Crypto, and Forex Trading

Whether it be stocks, crypto, or forex, all asset classes are affected by macroeconomic conditions, global politics, investor sentiment, and changes in central banking policies. Yes, all of those you do not have a crystal ball for. However, some trends can be reasonably predictable with expertise.

For example, when the Federal Reserve raises interest rates, it usually causes the US dollar to appreciate. Conversely, when interest rates rise, stocks tend to drop in anticipation of lower future earnings.

The crypto market is less predictable as it’s sometimes unclear how institutional investors will react to rate hikes and other economic data. However, there are some general rules investors can follow.

Typically, when Bitcoin increases in price, altcoins undergo rapid price increases. When Bitcoin and other large-cap coins experience a sell-off, altcoins get hit hard. In times of economic expansion, money flows into the crypto market as speculators hunt for high-risk/high-reward investments.

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Pros and Cons of Forex Trading

Pros

  • High liquidity ($6.6 trillion in daily volume)
  • Lower risk (compared to stocks and crypto)
  • High leverage available (up to 50:1)
  • Low fees
  • Great for automated trading
  • Low minimum investment
  • Market open 24 hours Monday – Friday
  • Great for day trading

Cons

  • Poor spreads on the weekend
  • Not suited for long-term investing
  • Light regulatory protection

How Can I Get Started Trading in the Forex Market?

The easiest way to start trading in the forex market is by opening a trading account with a reputable broker. A good place to start is our review of XTB, as one of the best platforms you can go for. From there, fund your account and decide which currency pairs to trade.

What Is the Difference Between Forex and Cryptocurrencies?

  • Number of Trading Instruments: Most forex traders focus on five to eight major currency pairs. By comparison, crypto traders have access to over 100 high-liquidity coins.
  • Trading Hours: Both forex and crypto markets are open 24 hours, Monday to Friday. However, the crypto market is also open for trading during the weekend. While some forex brokers provide weekend trading, liquidity is usually low, and the spreads are high.
  • Market Volatility: As mentioned above, crypto markets display significantly higher volatility than forex.
  • Decentralized vs. Centralized: Cryptocurrencies are decentralized assets governments don’t control. Fiat currency is issued by central banks and is heavily affected by global events and monetary policy.
  • Inflationary vs. Deflationary: Many popular cryptocurrencies like Bitcoin or Ethereum have a deflationary or static supply. Fiat currencies have an inflationary supply.

Is Forex Safer Than Cryptocurrencies?

Yes, forex is safer than cryptocurrencies. The market is less volatile, and you won’t have to deal with pump-and-dumps or other scams when trading forex.

How to Get Started in Forex Trading?

The easiest way to start trading is by opening an account at one of the best Forex mobile trading platforms and picking a handful of currency pairs to follow. You should also familiarize yourself with and track the major economic indicators that drive the forex market: inflation rates, interest rate changes, GDP, and the PPI.

>> Consider Oanda for Forex Trading

Pros and Cons of Crypto Trading

Pros:

  • Low starting capital needed (start with just $10)
  • Lowest fees
  • Highly volatile, potential for massive gains
  • High margin available (up to 100x)
  • 24/7 trading (weekends included)
  • Suitable for short-term and long-term investing

Cons:

  • Profits are subject to capital gains tax
  • Highly volatile means potential for massive losses too
  • The market is full of pump-and-dump schemes

How Can I Trade Crypto Right Now?

The easiest way to trade crypto right now is by opening an account with a reputable exchange like Prime XBT or Public.com. Once approved, you can link a debit/credit card and fund your account. Read our Public.com review for more details.

What Is the Difference Between Trading on Stock and Forex Markets?

The major difference between trading stocks and forex markets is volatility. While forex pairs tend to stay relatively stable, stocks, especially highly speculative ones, can be highly volatile. That said, stocks have a much higher potential for life-changing gains, and if you get into the right company early, it could set you up for retirement.

Finally, stock market trading is limited to business hours, while the forex market can be done 24 hours a day, Monday to Friday.

Is the Crypto Market Risky for Day Traders?

Yes, the crypto market is considered high-risk for day traders. This is especially true with low-cap altcoins, as intraday price fluctuations of over 30% are not uncommon.

>> Start Trading Here!

Pros and Cons of Stock Trading

Pros:

  • Lower risk than crypto trading
  • Great for short, medium, and long-term investing
  • You can access the stock market from your online banking apps
  • High liquidity
  • Highly regulated
  • Many blue-chip stocks pay dividends
  • Great for automated trading bots

Cons:

  • Only open Monday-Friday (9:30 a.m.-4:30 p.m. EST)
  • Max leverage of 2:1
  • Trading fees can be higher than forex or crypto
  • Not as much volatility as forex or crypto

What Is One Way I Can Trade Stocks Right Now?

The easiest way to trade stocks right now is through an online broker. Instead of searching for the best Forex desktop trading platforms, you can find platforms through banks and their online banking software.

This conveniently transfers funds between your online banking and trading accounts. However, not all banks offer quality trading software, and many can’t compare with Forex desktop apps.

What Is the Difference Between Trading Stocks and Cryptocurrencies?

The significant difference between trading stocks and cryptocurrencies is volatility. In the crypto market, it’s not uncommon for large-cap coins (like Bitcoin and Ethereum) to fluctuate by 15% or more in one day. By contrast, blue chip stocks may only fluctuate by a few percentage points on average.

While this makes the stock market less risky, it also reduces potential profit. The stock market is significantly more regulated than the crypto market, reducing the chances of losing money to scams and pump-and-dumps.

Does the Stock Market Come With the Lowest Risk?

The stock market is considered one of the least risky investments, especially if you stick to blue-chip stocks. Physical gold is also a safe investment, especially in the long term.

>> Consider Oanda for Forex Trading

FAQs

Let’s move on and answer some of the common questions you might ask about forex, stocks, and crypto below.

Can a Forex Broker Steal Your Money?

Yes, a forex broker can steal your money, although such an event is rare and only happens when using shady brokers. If you’re concerned about losing money, only open forex accounts with reputable brokers. We strongly recommend you read customers’ opinions online and a good place to start can be our review of Saxo.

Which Forex Broker Is the Best?

Prime XBT is arguably the best forex broker at the moment. With clients in 150 countries and 24/7 customer service, the platform offers top-tier liquidity and a wide range of trading tools. You can access over 100 trading assets and many trading tools. You can trade cryptocurrency, commodities, and stocks. The site uses Amazon AWS as its trading software.

Are Forex Brokers Worth It?

Yes, forex brokers are worth it. They provide access to real-time quotes and an array of trading tools and indicators, as the only practical way for retail investors to access the forex markets.

What Should I Look for When Choosing a Broker?

When choosing a broker, consider the following criteria:

  • Trading Pairs Offered: Always check which currency pairs a broker offers before signing up. This is especially important if you’re interested in trading minor or exotic pairs.
  • Spread & Trading Fees: Spreads and trading fees can vary between brokers, so always compare a few options before signing up. Look out for monthly account fees.
  • Trading Software: Trading platforms are different, and you may prefer one. While MetaTrader4 is considered the industry standard, some brokers also use proprietary software.
  • Reputation: Some forex brokers like stocks or crypto trading platforms are more reputable than others. Before depositing money into a forex account, ensure you’re with the best forex trading platform.

>> Consider Best Platform for Trading

Can Forex Trading Make Me Rich?

Yes, forex trading can make you rich. However, most forex traders lose money, and it takes time and practice to become proficient in the art and science of trading.

How Do I Trade Forex With $100?

The easiest way to trade forex with $100 is by opening an account at a popular platform and using a beginner trading strategy like Simple Moving Average (SMA) crosses, MACD crosses, or momentum trading. Go with brokers offering detailed trading guides for a new forex trader.

How Does Forex Trading Compare to Stock Trading?

Day trading, forex, and stock trading follow the same mechanics. That being said, forex comes with lower trading fees, and if you stick to the eight major pairs, volatility can be much lower compared to the stock market.

What’s Better for New Traders? Crypto or Forex?

Forex is better for new traders because of the lower volatility and risks. However, both markets are beginner-friendly, and you must proceed cautiously.

Is Forex Better Than Stocks?

Yes, forex is better than stocks for high-frequency trading due to the low trading fees and longer market hours. However, stocks are considered a better long-term investment, and because the volatility is higher, there’s a greater potential for quick gains.

What Is Better, Crypto or Stocks?

For trading, crypto is better than stocks. Crypto exchanges have some of the lowest trading fees, and the volatility can make high-frequency trading very profitable.

Is Crypto Riskier Than Forex?

Yes, crypto is riskier than forex, too. Although trading either market can be risky, the crypto market is prone to quick price movements that can instantly wipe out gains or trigger margin calls.

Final Word

Short-term investors wanting to minimize risks and rely on technical indicators to identify entry/exit points should trade the forex markets. If you welcome high volatility and a higher risk/reward profile, trading cryptocurrencies at top platforms like Prime XBT is the best option.

For something in the middle, the stock market is a good fit. However, trading fees are typically higher with stocks than forex and crypto unless you’re trading with large sums of money. Whatever you choose, remember that trading is a high-risk activity and, as the old saying goes, don’t trade with money you can’t afford to lose.

>> Consider Oanda for Forex Trading.

The information provided in this article is for informational purposes only and is not intended to be financial advice. It is crucial to make investment decisions based on your own research and judgment. We do not endorse or guarantee the accuracy of any information provided in this content. We may earn a commission if you make a purchase through one of the links. McClatchy newsrooms were not involved in the creation of this content.

Ahad Waseem is a business, blockchain, and cybersecurity writer who often takes on art, politics, and economics too. As a linguistic engineer who writes to solve problems, he’s written for various tech and business publications. When he’s not writing, he’s probably on horseback, caring for his houseplants, or training Bonsai trees. He can be reached at [email protected]. McClatchy’s newsrooms were not involved in the creation of this content. We may earn a commission if you make a purchase through one of our links.

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