Stock trading vs FX trading in Japan: know the differences

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When it comes to trading, there are various options to choose from. Two of the most popular types of trading are stock trading and FX trading While both have similarities, there are also some critical differences between the two that you should be aware of before deciding which is suitable for you.

FX trading

So, if you’re thinking about investing in Japan, here’s a closer look at the differences between stock and FX trading in Japan:

Fees

One of the most significant differences between stock and FX trading is the cost. When you buy shares in a company, you’ll typically have to pay a commission, known as a fee. This fee can be pretty high, especially if you’re buying or selling large quantities of shares. With FX trading, on the other hand, there are no such fees. You pay the spread, the difference between a currency pair buy and sell price.

Trading hours

Another critical difference between stock and FX trading is the trading hours. With stocks, you can only trade during business hours, which means 9:30 am to 4 pm EST. FX trading, on the other hand, is a 24-hour market. It means you can trade whenever you want, no matter what time.

Liquidity

When it comes to trading, liquidity is an essential factor to consider. Liquidity refers to how easy buying or selling an asset is without affecting the price. Stocks are typically more liquid than FX, which means it’s easier to buy or sell shares without moving the market. However, this also means that stocks are more prone to volatility.

Leverage

Another critical difference between stock and FX trading is leverage. With stocks, you can usually only get a 2:1 leverage ratio. It means for every $1 you have in your account, you can trade $2 worth of stocks. With FX trading, you can get up to a 100:1 leverage ratio. It means you can trade $100 worth of currency for every $1 you have in your account.

Margin

It is the amount of money you need to put down to open a position. With stock trading, you typically need to have 50% of the total value of the shares you want to buy in your account as margin. So, if you want to buy $1000 worth of shares, you’d need to have $500 in your account. You can trade with as little as a 1% margin with FX trading. So, if you want to trade $1000 worth of currency, you’d only need $10 in your account.

Risk

When it comes to trading, risk is an essential factor to consider. Stock trading is generally considered to be riskier than FX trading. It’s because stocks are more volatile and can fluctuate a lot in price. On the other hand, FX is more stable and doesn’t fluctuate as much in price.

To understand and manage risk in investment, we suggest reading Seth Klarman’s Margin of Safety book. Kailash Concepts has a summary of that book and it will help you easily understand it.

Access

Another critical difference between stock and FX trading is access. It would be best to go through a broker to trade (view website). With FX trading, you can trade directly with another person or through a platform like MetaTrader 4 (MT4). It gives you more control over your trades and doesn’t require you to pay any fees or commissions.

Regulation

Another difference between stock and FX trading is regulation. Stocks are regulated by government agencies like the Securities and Exchange Commission (SEC). Any central authority does not regulate FX. It means there is more freedom in trading currency pairs, but it also means there is more risk.

Taxation

Another critical difference between stock and FX trading is taxation. You’ll have to pay taxes on any gains you make with stocks. You don’t have to pay taxes on your profits with FX trading unless you live in a country that taxes capital gains.

Account types

Finally, another difference between stock and FX trading is the account types. You can trade with a cash account or a margin account with stocks. You can trade with a standard account, a mini account, or a micro account with FX trading.

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