Forex Blog

what is the difference between forex trading and the stock market?

Noone still mentioned the fundamental difference, forex is a closed system, while the stock market is open. Let me elaborate on this when you take money out of a closed system, it gets smaller, and there is no internal source of money in the system; In an open system, such as a stock market, if you take money out of the system, it will eventually restore the amount taken from inside sources, such as dividends being reinvested, buybacks and stuff.

Another fundamental difference is what actually being traded. on forex, it is the currency, and keep in mind that currency != money. On the stock market, it is shares of public companies. I.e. liabilities of the company. If you buy stock – when you buy some small share of the company, if you buy enough stocks, you can get to the company board and become an insider, and can influence company operations. This is big companies such as Apple, Amazon, Alphabet, GE, etc. it’s not feasible until you manage literally billions of USD.

Forex is just a global exchange ground. Imagine you’re being some major bank, and you want to buy, say oil rig somewhere outside the US, you have dollars, but guys out there want some tugriks, they don’t know what the US dollar is. you can’t come to another bank and exchange it there, but on forex, there are a number of players scattered all over the world, and some of them are ready to exchange their tugriks for your USD. And that’s what forex is.

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