The most common question when it comes to investing, forex vs stock market: Should I go with currency trading or stock-market ?. This article will analyze the pros and cons of both investments in order to clear any confusion, and help you decide which one is right for you.
Currency trading, also known as Forex, can seem rather overwhelming at first. This type of investment involves the currencies of different countries, and tens of pairs. Contrary to what some might think, currency trading is actually simple and easy. Specially if you do it with a trusted forex broker like eToro, it is best suited for all kind of investors.
The main advantages of Forex trading:
- Access to the international markets: Currency trading allows you to invest in different currencies, including euros, pounds and euros. You don’t have to worry about which currency is currently the hottest and best because this is something you decide when you start your trading account. This way, the market will reflect your views and not yours or someone else’s.
- Flexibility: The daily trading hours allow you to trade whenever you please without worrying about getting stuck in traffic for a whole hour. The 24-hour access gives ample opportunities for consistent growth of your investments through this type of investment.
- Fixed income: As long as you invest, currency trading offers a fixed return (with the exception of certain strategies and types of trades). For example: if invest in euros and the rate drops by 10% from one day to another, you will never lose money. However, if your investment drops from 1 to 0.5%, you will not feel as good as if it didn’t drop at all.
The main disadvantages of Forex trading:
- Overwhelming at the beginning: In order to begin trading with a forex broker like eToro, you have to develop a basic understanding of the market and risk management.
- No free dividends: Unlike stock investing, currency trading offers no dividend payments. Dividends are rewards for companies which pay them to their shareholders. Therefore, if your investment loses value, you will not receive back what you’ve lost.
- Taxes: Unlike stocks and shares, currency trading is subject to taxation; however, certain types of trades may be exempt from this tax requirement.
- Security: The paperwork involved in currency trading can be quite tedious and too much for some investors to manage. You should also remember that there are certain security measures for this type of investment, compared to stocks and shares.
Advantages and disadvantages of stock market
Stock trading has proven to be a potentially lucrative endeavor for those who possess the skills to trade accurately and know when they should enter and exit trades, as well as those who can harness the capital of others. But as with any investment, it is important to research the market before you invest any money; to reap maximum profits. Those looking into stock trading can use their time at a Wall Street brokerage firm or by purchasing stocks online.
Diversification. When you invest in stocks, you are buying a piece of a company. When you buy pieces of many companies, we know this as diversification. By having shares in many different companies, your risk is spread out over many different industries rather than relying on one or two industries. For example, if you have all of your money in banking stocks but the economy takes a downturn because of the mortgage crisis, these stocks are likely to go down with the other banks that are involved with mortgages specifically.
The opposite can happen if you have your money invested in a computer company that offers the latest technology. And the economy goes into a boom because new technologies continuously develop that improve productivity. This will cause your stocks to go up because of the increase in sales. This is why diversification is critical to risk management when it comes to stock investing.
Many of the companies tend to be overpriced at times.
Investing in an individual stock can be a little more risky than investing in a mutual fund or ETFs. When you buy stocks directly from company, there is no regulation or laws telling you how or when you can purchase them.
There are times when the company will decide to “split” their stock. This is an attempt to increase or stabilize the stock price by subdividing it into many pieces. For example, you own ten shares of one company whose value is $100 per share. The company may want to take your 10 shares and break them apart into 20 separate pieces, valued at $50/share. This would be advantageous for them. That’s because they can now claim that they have doubled their investor base, which could possibly raise the price of the original ten shares.
Sometimes companies overstate their value in order to attract the interest of investors in their stocks.
Hope you learned something from this article.