On the face of it, the two asset classes of real estate and foreign exchange are radically different ones. The two assets move at different speeds and require different practices for a transaction to be successfully placed. But there are also some big similarities. Both asset classes rely on an analysis of interest rate changes in order to make effective decisions about the way things are going, for example, while they are also perhaps the two most common asset classes for an average person to suddenly find themselves having to trade. This blog post will look at what some of the similarities are – and also delve into some of the differences, too, for full context.

Reliance on interest rates

Perhaps the main parallel between these two forms of trading is that they are both reliant to a great extent on the movement of global interest rates. For a forex trader, this manifests itself in the form of price sensitivity: when a central bank responsible for maintaining a currency announces a change in interest rates, the price of the currency often dips or rises in response. 

For a real estate investor, interest rates affect the investor in a different way. They dictate the cost of the debt that the investor takes on when they borrow a mortgage: the amount an investor has to pay in interest is determined in part, but not wholly, by the rate of central bank interest. In an era of low interest rates, real estate investment may be higher given the lower cost barriers to entry – but in an era of high rates, it could well dip. 

Often necessary 

Unlike stocks and shares, both forex and real estate play essential, active and direct roles in the lives of almost every citizen – meaning they are the two asset classes that most people can’t escape trading at least once in their lives. Real estate, of course, is bought and sold by private residents as homes to live in and lifelong investment vehicles. Forex, meanwhile, is purchased by people traveling abroad for leisure and work. This ubiquity of the two asset classes often leads people to be highly sensitive to prices in both and gives them an advanced understanding of how the markets work. 

But what are the differences?

Finally, it’s also important to explore what the differences are between these two asset classes – otherwise you may come away with a false idea of their equivalence. They have a number of distinct differences that an investor in either (or both) ought to know. Firstly, the foreign exchange market has the potential to be much faster moving. When you open a position on the forex markets, you’re able to keep it open for as long as you please – although it’s highly common to sell your holding after a much shorter time that you’d typically sell real estate. 

Forex day traders, as they are known, have the capacity to make profit in a timescale as short as a few hours. Real estate, on the other hand, doesn’t tend to see skyrocketing profits in anything under a few months – and even then, that’s not a given, with many real estate owners finding that their holdings don’t make profits for years on end. At least traders of both asset classes can use tools to help them track price changes. Property purchasers can go back in time through old sold price records, while forex traders can work out how to use EMA indicator tools at a top site like ForexTraders. 

Another key difference is what you need to do in order to make the transaction. Trading foreign exchange has relatively low barriers to entry. Traders in this asset class can often open up their position simply by signing up to a broker website and buying. The presence of derivatives, which track the underlying asset without conferring ownership, make this much easier. 

Buying actual real estate is more complicated and can often throw up several barriers including bureaucracy with whatever authorities operate the land records in your jurisdiction. One way around this is to purchase a stake in a diversified property fund or similar which allows for you to benefit from global property market funds without having to buy an actual bricks and mortar property yourself.

Ultimately, there are clearly plenty of similarities between these two asset classes – including their reliance on interest rates and the fact that they are both necessary in many people’s lives. And while there are some key differences, it’s worth remembering just how ubiquitous both of these asset classes are for most people.