Forex vs Stocks vs Futures

Financial Markets Explained

Financial markets is the term used to describe the markets where financial products can be bought and sold. Financial markets usually have central exchanges, or marketplaces, such as the London Stock Exchange (LSE) and the Chicago Mercantile Exchange (CME). Having a central exchange is not a necessity though, for example the foreign exchange market has no central exchange.

The types of participants in financial markets are usually institutional investors (such as pension providers and hedge funds), governments, traders and individuals.

Types of Financial Markets

There are many types of financial markets, these include stock markets, bond markets, commodity markets, foreign exchange markets and derivative markets.

Stock Markets

Stock markets can also be called capital or equity markets. They are the markets where stocks and shares are bought and sold. A country usually has a stock exchange where company shares listed in that country can be bought and sold. The most commonly known stock exchanges around the world include the London Stock Exchange (LSE), the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange.

Purchasing at least 1 share makes you a shareholder within the company purchased. Being a shareholder entitles you to a share of any company profits. These profits are paid as dividends.

Bond Markets

Bond markets can also be referred to as debt markets. These are the markets where debt (bonds) are traded rather than equity (stocks). The types of bonds listed on debt markets can include corporate bonds, government bonds and mortgage back securities.

Commodity Markets

Commodity markets come under the category of futures. The futures market includes commodities, indices and some currencies. Futures are considered more complicated than traditional trading or investing. Some of the most traded futures include…

Commodities – agricultural commodities (corn, wheat, sugar), energies (oil, natural gas, heating oil) and precious metals (gold, silver, copper, platinum).

Index Futures – stock indices (S&P500, NASDAQ)

Currency Futures – AUDUSD, CADUSD, CHFUSD, EURGBP, EURUSD, GBPUSD, JPYUSD, NZDUSD

The Foreign Exchange Market

The foreign exchange market is also referred to as the FX market or Forex market. The Forex market has no centralised exchange. It is the market for trading global currencies.

Derivative Markets

These include financial products such as ETFs and CFDs. Derivatives are derived from an underlying asset, meaning there is no ownership of the “stock”, “currency”, etc, that is being traded.

Forex vs Stocks vs Futures

Each type of financial market provides opportunities to make money but each market has it’s own pros and cons…

Forex

Pros – Forex is great for new traders. Many Forex brokers offer user-friendly trading platforms and plenty of free educational material. Forex is usually highly leveraged, meaning you can trade with a small amount of capital. The Forex markets have no central exchange, meaning they are open for trading 24 hours a day. The Forex market is highly liquid and volatile, making it easy for market participants to open and close positions.

Cons – Due to the high leverage available when trading Forex, losses as well as gains can be extremely high. We highly suggest you trade on a demo account first. You can open a free demo trading account on this page.

Stocks 

Pros – Stocks are great for longer-term investing. They can provide a safer return than trading Forex or other financial markets. The stock markets can be very volatile at times and provide opportunities to make a great return. Trading stocks can give you shareholder ownership of your favourites companies.

Cons – Due to the fact that stocks are listed on local stock exchanges, stocks are not available to trade 24 hours a day. Depending on where you are in the world, trading stocks can be difficult. Stock brokers usually don’t offer demo trading accounts, making it difficult to practice. Stock brokers usually don’t offer leverage or trading on margin, meaning that more capital is needed than trading Forex. Some stocks have low liquidity, making buying and selling them difficult.

Futures

Pros – Futures are deeply interesting and provide great trading opportunities. The futures market offers a variety of products that can be traded, such as agricultural products, energies, stock indices and currencies.

Cons – Futures are much more complicated than stock or Forex trading. Leverage is not usually offered, nor any demo trading accounts. An alternative to trading futures is to trade CFDs of futures, such as CFDs of the DOW, FTSE, GOLD and OIL. TriumphFX offers these CFDs on our trading platform. You can open a free demo account on this page. The futures with the highest trading volumes are listed in the US, making them difficult to trade if you are based outside the US.

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