Difference Between Stock Market and Forex

The stock market and the foreign exchange (forex) market are the two most popular financial markets in the investment world. Investing in both markets is quite profitable, but carries a fairly high risk. In the stock market and forex market, traders can carry out trading activities (trading) instruments in them with the aim of benefiting from changes in the value of these instruments. The mechanics of trading in the forex and stock markets are basically the same. However, there are some significant differences between the two. This is the difference between stock market and forex:

Traded Instruments

In the stock market, the instrument traded is proof of ownership of a company or limited liability company. There are hundreds of companies listed on a stock exchange whose shares can be traded, such as Astra International Indonesia (ASII), Adaro Energy Tbk (ADRO), PT Bank Rakyat Indonesia, Tbk (BBRI), and others. While in the forex or foreign exchange market, the instruments traded are the currencies of countries in the world. Forex instruments are generally traded in pairs, such as the euro against the pound sterling (EUR/GBP), the euro against the United States dollar (EUR/USD), the pound against the United States dollar (GBP/USD), and others.

There are many combinations of forex pairs, but the main forex pairs that are often traded include EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD. In contrast to forex trading, which compares the value of a country's currency with the currencies of other countries, in stock trading, the value of a company's shares is not compared to the shares of other companies.

Trading Time

The stock market usually only operates from morning to evening. The opening and closing hours of the stock exchanges in each country are of course different, for example the Indonesia Stock Exchange (IDX) on Monday-Thursday session I will be opened at 09.00-12.00 and continued with session II at 13.30-15.49.59 WIB or Jakarta Automated time Trading System (JATS). Meanwhile, on Friday, session I was opened at 09.00-11.30 and session II was at 14.00-15.49.59 WIB (JATS). Meanwhile, the forex market trading hours last 24 hours non-stop from Monday to Friday. This is because forex is traded all over the world which has time differences. In the forex market there are four trading sessions in the world, namely the Australian session (Sydney) which starts at 05.00 - 14.00 WIB, followed by the Asian session (Tokyo) starting at 07.00 - 16.00 WIB, the European session (London) which starts at 13.00 - 22.00 WIB, and the American (New York) session starts at 20.00 - 05.00 WIB.

Leverage

In the forex market there is a term leverage that allows a person to make transactions with a smaller capital than the actual capital. Generally, leverage in forex is displayed in a certain proportion, for example 1:100 to 1:1,000. For example, 1:100 leverage means that if you want to make a transaction worth US$10,000, you only need to spend US$100 worth of capital. The difference in transaction funds from the capital is considered as loan funds from the broker for traders. This loan does not bear interest and cannot be withdrawn, it is only used for trading. Loans can be obtained after the trader has deposited capital as margin (the amount of money that must be in the account balance). Meanwhile, leverage in the stock market is very small or even non-existent. So when you want to buy shares worth Rp. 100 million, of course you must also have a capital of Rp. 100 million.

Liquidity

The forex market is the most liquid financial market compared to others because of its very large capitalization. There are always enough funds available in the market, so that all sellers can easily find buyers. Meanwhile, liquidity in the stock market is highly dependent on the popularity and capitalization of the shares purchased. Large and popular stocks or blue chips will be easier to resell. However, when buying third-tier or small-cap stocks, it can be difficult to resell them.

Profit Opportunity

Transactions in the stock market only occur in one direction, namely starting with buying shares and selling them after waiting for some time. The difference between the purchase price and the selling price is a gain or loss. Therefore, profit or profit opportunities in the stock market can only be obtained when prices move up. Whereas in the forex market there is a two-way opportunity term, ie traders can still look for profit opportunities, both when prices move up or down. This happens because the forex market trading allows two-way transactions. When the trader expects the price to move up, the trader can take a Buy (long) position to seek profit. Conversely, when the price is down, traders can sell (short) to make a profit.

Volatility and Risk

The volatility of the forex market is very high, meaning that prices can go up high quickly and suddenly fall quickly. This is because the forex market is very sensitive to a country's political, economic and social events. Meanwhile, price patterns in the stock market tend to be more stable which can be tracked over time. The higher the volatility, the higher the profits. However, keep in mind the risk will also be higher.

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