nvesting is great when you have some free money in the bank.Not only do you get to utilize the money in a profit-making manner, but you also get to learn new things about business. There are many avenues you can take when you want to invest your money. Most people generally go for stock trading, real estate investment or forex trading. No matter the route you take, you can be guaranteed of earning a lot more than what you get from the bank as interest when you have banked your money.
Two of the most common forms of investment for beginners are forex trading or stock trading. If you have already settled on these two but can’t make a final decision, knowing more about each can help you choose one. The following is a quick breakdown of the advantages and disadvantages of forex vs stocks in an effort to establish which one is better for beginner investors.
Forex trading Merits and Demerits
- To start with, the forex market runs for 24 hours every day of the week excluding Saturday and Sunday. The market is thus a great place to start if you want to trade uninterrupted at any given business day or night. The opportunities available are therefore unhindered. The disadvantage of the market, however, is that particular periods during the day are not ideal for business. There are active and inactive times at certain times and traders have to time exact moments when their assets overlap in the market.
- Volatility is guaranteed in the forex market. This means that the pace of the market is quick and traders are always seeking new opportunities in the market. Short-term investors thus have the best chance of making profits in this kind of market. The forex market is however not so great for prediction. Sometimes, the volatility catches traders off-guard and a lot of insight is needed to succeed.
- A margin account is needed to trade currency. Generally, the leverage provided in the forex market is great but a trader needs an account in order to link up with brokers. The big leverage is great as it guarantees traders of big returns when the trades go according to plan. All this is possible without huge cash investments. The disadvantage of the leverage system is that traders also stand to lose big if the market goes awry.
- The forex market is influenced by world events. This can be both a great thing or a bad thing. When natural disasters and other negative events occur, the currency is affected. Traders depend on the market volatility and changes in the events thus promising better margins for the currency trade. The downside, however, is that some news about the market is simply misleading and they can cause traders to lose money.
Stock Trading Merits and Demerits
- The stock market is much more stable. It provides a great investment avenue for those looking to invest in the long-term. The average lifespan of most companies is well beyond several decades. Investors can thus put their faith in their stocks regardless of market performance. The stock market, however, is not open for 24 hours. Trading is only possible when the stock exchanges are open.
- The market is rife with various investment funds. Investors are thus better placed to find a suitable investment option. With IRAs, mutual funds and other investment options being available free to all investors, the level of confidence in finding a suitable investment option is much higher. The availability of many options, however, might leave some investors undecided.
- The market is slow-paced. This means that you do not have to make quick investments or quick reactions because of market changes. This is great for investors who are interested in long-term benefits. For short-term investors though, this is a challenge that locks them out.
Which is the best market for beginners?
As the above points clearly illustrate, the main difference between the stock market and the forex market is the duration needed for an investment to yield profits. The forex market is a short-term investment market that yields quick profits. If your goals are to make some quick profits in the short-term, then this market is the best one for you. The stock market, one the other hand, is a long-term market which allows traders to invest their money and wait for their returns after a longer duration.