Many beginners choose to invest in shares (also known as stocks or equities) before participating in speculative trading. That’s because investing can be simpler: you’d just need to buy a portion of a company – usually over the long term – with the hope that it’ll appreciate in value over time, and you can sell it for a profit.

Despite being interconnected, the forex and shares markets can be quite different. Forex has unique characteristics that set it apart from other markets, which can make it far more attractive to some traders.

Knowing the differences and similarities between the stock and forex market enables traders to make informed decisions based on factors such as market conditions, liquidity and trading volume.

Top four differences between forex and stocks

The table below summarizes a few key differences between the two markets:

_{¹ According to the Bank for International Settlements (BIS) triennial report of 2019. Figures are based on the broader forex market, and liquidity may vary from broker to broker.
² According to the World Bank’s data for 2019, which outlines that the stock market generates around $61.14 trillion in trading volume per annum. Figures are based on the broader forex market, and liquidity may vary from broker to broker.
³ Other fees and charges may apply.
⁴ It’s possible to find stockbrokers that don’t charge a commission on share trades.}

Let’s take a more in-depth look into how exactly the forex market compares with equities.

Trading volume

One of the biggest differences between forex and stock trading is the sheer size of the forex market. Forex is estimated to trade around $6.6 trillion a day, with most trading concentrated on a few major pairs like EUR/USD, USD/JPY, GBP/USD and AUD/USD, among others.

Considering that the dollar-volume of all the world’s stock markets combined averages roughly $16.7 billion per day, forex trading far outweighs investing in shares.

Having such a large trading volume can bring many advantages. High volume means traders can typically get their orders executed more easily and closer to the prices they want.

While all markets are prone to gaps (or slippage), having more liquidity at each pricing point could better equip you to enter and exit the market.

Market liquidity

A market that trades in high volumes generally has high liquidity. Liquidity can lead to tighter spreads and lower transaction costs.

Major forex pairs typically have low spreads and transaction costs when compared to stocks, and this is one of the major advantages of trading the forex market.

24-hour markets

Forex is an OTC market, meaning that it isn’t transacted on traditional exchanges (which tend to have fixed operating times).

Trading currencies is facilitated through the interbank market. This means that trading can go on all around the world across many countries whose business hours and trading sessions tend to differ.

This gives you access to the market 24 hours a day, 5 days a week. Major stocks and their related indices, on the other hand, trade at different times and are affected by different variables – like exchange hours.

Minimal or no commission

Most forex brokers don’t charge a commission on forex trades. They instead make money on the spread (the difference between buy and sell prices). When trading stocks, or a major index like the S&P 500, you’ll often need to pay the spread along with a commission to your broker.

Forex spreads are usually more transparent. Below you’ll see the EUR/USD spread, highlighted in between the sell and buy price of the market. This is an example of a spread you can use to calculate the cost for your position size upfront before executing your trades.