NYSE vs FOREX: Which Market to Choose?
NYSE vs FOREX: Which Market to Choose?
This article is for beginners who want to calmly reflect and understand whether it is possible to compare such different markets.
The most crucial step in preparing for a professional trader’s path is choosing the market in which to trade. This choice will determine the selection of trading strategies, the required initial deposit size, the conditions for accessing trades, and many other factors. Excluding derivative markets (futures, options, etc.), which require a much higher level of expertise, the two main options for a trader are the stock market (for example, the NYSE – New York Stock Exchange) and the currency market, more commonly known as Forex or FX. So, how should one choose between them, without regretting the decision later? In this article, I highlight two key differences between these markets that a trader should pay attention to.
Market Structure and Opportunities
The Forex market is completely decentralized – each broker is an organizer of trades, creating a separate market system. Therefore, the Forex market is closed, and gaining full access to objective market information is simply impossible. Since brokers act as market makers on their own platforms, competing with each other, and the vast liquidity of the market is distributed across platforms worldwide, the exchange rate of the same currency pair can vary on each platform. You can observe this phenomenon in everyday life as well, when the exchange rate of the same currency pair differs from bank to bank. This situation can either be natural (due to an internal imbalance of supply and demand) or manipulative – the action of the broker or another large player. In the currency market, such actions are not regulated, and they can be fatal for participants with small capital.
Example of Differences in EURUSD Currency Pair Charts on Different Forex Platforms
CEO of Fondexx, Hlib Kozak: “Each forex market participant is a liquidity pool in the forex market. And just as any currency trader can deceive you with the exchange rate or money, an opaque and poorly regulated forex brokerage becomes a goldmine for international financial criminals. This makes this area extremely toxic for beginners.”
On the other hand, the stock market is completely centralized. Nearly all liquidity is concentrated on exchanges, and off-market transactions are rare, though still regulated by relevant authorities. As a result, all participants receive the same data, and executed trades are reflected in the trading history equally for everyone. This makes manipulations almost impossible – whether participants are large funds, banks, or individual traders, the quotes and charts will always be identical. Moreover, the stock market is highly regulated by government entities, making trading on it much more legally secure and transparent than on most other markets.
Volatility and Its Impact on the Optimal Deposit Size
Volatility defines the percentage change in an asset's value over a specific period of time. In other words, the higher the market's volatility, the larger the price fluctuations, and accordingly, the potential profit, while infrastructure costs will be less noticeable.
Volatility is directly related to market liquidity – the higher the liquidity, the lower the volatility of the market. Forex is the most liquid spot market, and therefore, it has the lowest volatility – on average, this figure is 0.39% per day. However, on major trading pairs, this figure is significantly lower – approximately 0.1% to 0.2% per day. This means that to earn $100 in a day, you need to operate with an average volume of $25,000 – $100,000.
To avoid this barrier, forex brokers provide margin leverage to their clients – borrowed money in proportion to the trader's deposit. Typically, this ratio is 1:50 to 1:100, but some brokers offer leverage of 1:1000 or more. However, it is important to understand that with increased leverage, the risk of open positions also increases – brokers have strict risk management systems and may forcibly close client positions under unfavorable market conditions for them.
For the stock market, the average volatility is approximately 1.8% per day, which is 6-10 times higher than forex. At the same time, the stock market offers a much wider range of instruments for trading, each with its own volatility. Well-known companies with a rich news background and active business operations in their fields (such as Tesla or Meta) may have volatility up to 3-5%. This means that to achieve the same results, one can use a deposit with significantly smaller amounts. On the other hand, brokers in the stock market cannot provide high leverage ratios – usually 1:2 to 1:4. However, many companies are willing to offer leverage of 1:10 to 1:50 on the stock market, providing their own funds for clients (prop trading companies).
Daily Price Change in the Forex Market and Stocks from the S&P 500 Index
But these are not the only secrets and opportunities in the stock market – there are also two types of events that regularly trigger spikes in volatility: earnings seasons and IPOs. On these days, stocks become the subject of wild hype, and their prices can change by several dozen percent within just a few hours. These events are unique to the stock market and do not occur in the currency market.
As a result of the IPO in the summer of 2021, Robinhood's (NASDAQ: HOOD) stock showed an increase of up to 130% in just 5 days! Source: TradingView.
The price chart of Meta (Facebook) stock, with marked price jumps during earnings seasons (Earnings gap). Source: Investopedia.
Which Market to Choose?
The stock market appears more attractive – both for beginners and experienced traders. This market is more in-depth for analysis, transparent, and regulated, with a significantly greater number of financial instruments and strategies available for trading.
In addition to active trading, the stock market offers the possibility of long-term investing in company and fund securities, with the goal of preserving and growing capital. However, for a more detailed analysis, it is important to consider other market aspects – liquidity, trading volumes, who the other market participants are, the financial aspects of market access, etc. This will help achieve maximum understanding of which market best suits your trading style.
Interesting Fact: One of the founders and the lead trader of the Fondexx team, Dmytro Bakhtin, started his journey in 2005 in the Forex market. However, after 5 years, he fully transitioned to the stock and options market. According to him, "Since 2010, I’ve mostly traded stocks and options, because with ETFs, you can trade almost all major futures and currencies, and there’s no need to maintain additional accounts on those markets."