FOREX vs. Stock Market: Which is Riskier?

Foreign Exchange or simply known as FOREX is simply the largest financial market worldwide. It is accessible only through various platforms online that are running 24/7. On the other hand, stocks are regulated heavily via physical exchanges such as NASDAQ or the New York Stock Exchange. These are traded only when there are open exchanges. Of course, each investment channel poses unique benefits and risks.

In stock market, this is where you would see well-known and large companies meet. So for example, you may have known a company that does debt collection for dental fees. Assuming that they are large enough, you can buy shares from them and be a part owner of that company through stock market brokers or platforms. But as what said, you need to be mindful about the risks associated with such investment.

Leverage Risk

FOREX for instance isn’t an investment in a manner of holding security medium to even as long-term profits compared to investors who are doing stocks. There are rare instances of large fluctuations among exchange rates. FOREX investors should take short-term leveraged position in an effort to magnify their potential gains.

Stock brokers on the other hand are allowing leverage ratio of 2 to 1 while FOREX platforms are allowing leverage ratio of as much as 50 to 1 or at times, 200 to 1 in other countries. Leveraging is executed by borrowing money from brokers and at times called as margin trading.

Country Risk

In terms of difficulty and riskiness, FOREX trading is “more” than stock market. Stock investors are using fundamentals of the stock of a company for forecasting its future prices. However, there are several other factors that may impact the value of the currency.

Few of these factors include the country’s gross domestic output or GDP, the consumer price index or CPI as well as current employment rate. Historically, it is the uncontrollable or unexpected events that most significantly affecting the exchange rates. Political situation, natural disaster or decision by the central bank of the country all influences the current exchange rate in the most unpredictable ways.

Stop-Loss Orders & Profit Limit Orders

Investors may make use of this method to lower risk exposure in both stocks and FOREX. These orders are closing out a position in the event that the price reached a set point. Thus, helping them to protect their investments and still make profits in the process.