Stocks vs the Forex – Which Market is the Best for Beginners?

If you’re just getting started on your road to investing, we would like to congratulate you. You are making a brave decision and are finally ready to make money work for you. That’s great.

Now you may have been presented with several options when it came to markets, and chances are the first two you heard of the most are the Forex and the stock exchange. Both of these options have their pros and cons, and some might be tougher to enter than others. They also require vastly different strategies to succeed. Let’s take a deeper look at both Forex investing and stocks, and help you find out which option would be the best for you.

What Kind of Investor are You?

The very first question you should ask yourself is what kind of investor you are. Because you might not even be an investor after all. If your goal is to capitalize on small movements on stocks whether they’re going up or down over a few minutes, day, weeks, or a few months, then you’re a swing or day trader, not an investor.

An investor wants to hold assets for a certain amount of time and watch them appreciate and possibly gain dividends. While you can invest in currencies and hold them, Forex is not the best instrument for that. Not to mention that there are no dividends with currency. If you want to profit playing the long game, you will either need to have a great advisor in your corner or lots of experience since predicting the trajectory of currencies over years can be extremely difficult.

If your goal is to invest for the long run and maybe even leave something to your kids, then the stock market is a great option. If you choose wisely, this is where you make the big gains and where you can make some passive income as well.

Also, know that you can’t just start day trading like that. To start as a day trader, you will need to have a sufficiently founded account. You will be required to have at least $25,000 in your trading account when you get started and at all times if you want to make more than 4 trades on the same day more than 5 times over a 5 day period. So, if that was your idea of “investing”, you will either need to start saving or reconsider your options.

What’s Your Starting Capital?

The next step is looking at how much you have to invest. Like we mentioned earlier, you will need at least $25,000 in your day trading account to even start, but not everyone wants to trade that way. In this case, it’s very possible to start with a modest amount. The question for many is how much. According to Investor’s Business founder, William O’Neil, typical workers and beginners shouldn’t assume that you need to have tons of money to get started. “$500 to $1,000 is more than enough to get started, you can then start adding to this amount as you start making gains and save,” he says. He also stated that his first purchase was just 5 shares of Procter and Gamble when he was at the ripe age of 21.

The goal here is not really how much you get in the game with, but how to pick the right players. One piece of advice would be to only buy when the market is in an upward trend. A couple of stocks will reflect the health of a market, so there’s no point in investing when there’s a clear downward trend or correction. You want the stock to start at a good base and make sure that it’s not overbought. Then you can start checking for a clear uptick and make your moves then.

When it comes to Forex, the beauty of it is that you can start with almost nothing. You even have people who start with a few dollars on their Paypal account. Forex is just easy to pick up, and you can also easily open an account. Some will have a small minimum deposit requirement while a few will have none. So, if you’re looking for a market with an easy barrier of entry, Forex is the way to go.

That doesn’t mean that it’s difficult to start trading stocks, however. You just need to understand the basics and know that a more significant investment will be required. If you want to learn exactly how to buy stocks we suggest you check out Wealthsimple. They are a financial company with everything you need to get started. You’ll learn how to pick a broker, how to trade stocks online, or how to trade without a broker. They also offer a few strategies on how to make money and how to minimize risk.

How Hands-On do you Want to be?

If you were thinking of going for Forex, know that there are no real auto-pilot strategies. This means that you will most likely have to be glued to your monitors, and you could be at it for whole days as the Forex market never sleeps.

With stocks, on the other hand, there are tons of ways that you can still make money without paying too much attention to the market. You could simply invest in a long-standing and over-performing fund that you trust and let the manager handle the rest. You can also find a good investment firm or a broker and let them handle the day to day operations for you.

Also, stocks are steadier over long periods and easier to track, which means that they require less of your attention. With Forex, you will make most of your money on quick movement, so these will require much more of your attention. It’s not guaranteed that you’ll get an equal return either.

The Powers and Dangers of Margin Trading

There is one major feature that separates Forex trading from stock trading is leverage. With Forex, you can get to control up to 100 times or even more of a currency that you’re trading. Meaning that you could invest $1 from your account, but have it equal a $100 investment in the market. This not only means that you can get the same profit as you would if you invested that sum but the same losses as well.

This also means that you can get in trouble really fast if you start overreaching and make consecutive unsuccessful trades. However, leverage can be a valuable tool when used responsibly. The risk can be minimal if you’re making small moves on a small margin. As a matter of fact, most investors use leverage.

Also, know that you can also use leverage with stocks, but it’s less common. Forex is more liquid, and its price movements aren’t as wide, which makes it a better option. However, most brokers will still offer 2:1 leverage options to traders.

Accessibility and Liquidity

On the other hand, some people may be looking for action. They might be looking for an asset they could trade nervously based on daily movements and events. If that is you, then Forex and day trading are two good options. But, as we mentioned earlier, getting started with day trading is much more complex.

The Forex markets are open 24/7. This not only means that you can start trading in the middle of the night, but you can also arrange your strategies to align yourself for certain markets. That adds another level of complexity and possibilities.

The Forex market is also much more liquid. This means that selling and buying are much easier. With certain stocks with lower volume – we can think of penny stocks for instance – you could wait a long time before you get a buy order. With Forex, even obscure currencies will see movement, so this could be a great possibility for those who may be familiar with lesser-known markets.

Which One has the Steeper Learning Curve?

Here, we would like to say that Forex is easier to pick up and learn, but there are nuances. Like we said earlier, there are ways that you can put your stocks in auto-pilot and let someone else deal with them. In this case, you only need summary knowledge. But if you’re going to start actively investing in stocks, you’ll need to learn a lot and tracking movements is not as easy as with the Forex.

In Forex, you only have but a few currencies to worry about. You have about 8 major currencies truly driving the markets, so keeping attention to them is easier. However, it’s also much tougher to make a lot of money on Forex since it requires a lot more involvement.

At the end of the day, your decision should boil down to how much tolerance to risk you have, and what your trading style is. If you like the excitement of daily trades and fluctuating price movements, then Forex might be the way to go. But, if your goal was to buy and hold and really feel like you own part of something, stocks might be the best option.