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When first exploring the idea of trading, a lot of novices look towards both Forex and Stocks.
Forex trading has emerged recently as a pretty popular career, not least because of its accessibility. It essentially involves the trading of currencies in an effort to take advantage of changing currency values to turn a profit.
Stock trading, on the other hand, is focused more on investing money into listed companies with the aim of building a profit on the back of their successes. As the company increases in value, so too do the values of the stocks you purchase.
But which one is right for you? Let’s take a look at some of the pros and cons of each.
Trading in stocks is often the novice’s introduction into the financial markets. To succeed, you need to have a keen interest in keeping track of market developments. You should also keep these pros and cons in mind.
Choices – Diversifying your portfolio is almost always a good thing when you start trading and working on the stock market offers unbridled choice. This can be a little intimidating at first, as it can be difficult to choose the stocks that will work best for you, but this choice also increases the possibility of you coming across an investment opportunity that others haven’t spotted.
Instant Action – In the majority of cases, buying and selling stocks can be done instantly, especially with the rise of online trading. This liquidity means you can adapt to changing market conditions, making your investments more fluid.
The Time Factor – Purchasing stock without doing substantial research into both the company and the people behind it is always a bad idea. It prevents you from mitigating risk and identifying potential issues. This does mean that those trading in stocks need to spend time learning about the market, the industries they are interested in and the companies they wish to purchase stock in.
Volatility – Those who are in for the short term are occasionally caused out by major volatility in the stock markets. For example, in 2008 stocks, in general, lost over 35% of their value. This risk is one that you will always need to take when trading in stocks and you should be prepared to deal with market volatility.
Many see Forex trading as more accessible than stock trading, but it is important to understand the cons as well as the positives. Here are a few.
Lower Costs – Forex trading definitely offers lower costs when it comes to commissions and fees for your trading activities. This means that you get substantially more return on your trading activities, assuming you are successful.
Ease Of Access – Forex has the largest number of market participants of any of the trading markets. This translates to higher degrees if liquidity and more ease in trading. The speed at which brokers can execute trades is a major plus point, as it allows traders to adapt quickly to changing market conditions.
Lack Of Regulation – Unlike with the stock market, Forex has very little regulation in place. While this can be advantageous, particularly when it comes to liquidity and ease of access, it does have its downsides. A lack of transparency is often a problem, as traders may not fully understand what brokers do and there is not a lot they can do about it.
The Learning Process – While there are plenty of materials online that can help traders understand Forex, the learning process is mostly going to be self-regulated. Contrast this with the stock market, where there are tons of classes available and you can access professional guidance more easily and the task of actually understanding what you are doing is more daunting.
So Which Is Right For You?
It really depends on what you are looking to achieve and the lists above are by no means comprehensive.
Those who wish to trade in the long term are probably better suited to the stock market as they will be more willing to invest the time into research and can diversify enough to see strong returns over time.
However, if you are looking to make quicker money Forex may be the better choice for you. You will need to be very active to keep on top of things, though, plus you should be aware of the lack of transparency and oversight in the markets.