The foreign exchange market aka Forex market is all about buying and selling of foreign currencies. You buy foreign currencies, hold it for some time, and then sell it when the exchange rates become higher. The forex market, also called FX market, is not based on investing in a business but rather trading of foreign currencies. The trading takes place with two different currencies, between two countries.
The stock market, on the other hand, is trading of stocks, shares, or debentures. You buy shares of various companies from the share market, hold it for some time, and then sell the shares or stocks when the price rises. The basic difference between the stock market and forex market is what you trade. In the stock market, you trade stocks whereas in forex market you trade foreign currencies.
Comparatively, the value and volume of foreign exchange trading are bigger than the stock market trading. The estimated daily FX trading volume is believed to be two trillion dollars, which is very high than the stock trading. In the forex market, the governments, banks, and financial institutions are the primary players.
The forex market is considered lucrative than the stock market because what you buy and sell in the FX market can be easily liquidated into cash. For example, you live in the US where the primary currency is US dollars. You buy Pound Sterling. You can easily convert British pounds into US dollars. This is one of the factors why forex market has an advantage over the stock market. If you are trading stocks, it takes the time to convert your stocks into cash.
The stock market limited to a country’s territory. However, forex trading is global. This is another difference between the stock market and forex market. It is very unlikely that a Chinese individual will buy shares in the American companies. Even if he buys, it is always in small figures. However, Chinese individuals will buy any currency from the forex market in order to profit from forex trading. Likewise, the traders in the US will buy French Franks, Chinese Yuan, Japanese Yen because these currencies have potential to fetch good selling price. The stock market deals with businesses and products in a certain location, whereas the fx market trades any currencies, in any locations.
The stock market has limitations. It has fixed business hours, the trading closes on holidays and weekends. However, forex trading goes 24 X 7 because numerous countries in various time zones are involved in the trading.