In the past few years, more and more people chose trading as their full-time job and main source of income. The reason behind this phenomenon is that nowadays, extraordinary profits are just one-click away! Forex and stock trading are among the most popular types. Both come with advantages and disadvantages which will make you choose the best one for you.
Forex and Stock trading – a brief introduction
Forex trading is more speculative and represents the action of trading fiat currencies. When you trade a currency pair, you either buy a currency at one price and sell it at a higher price; or you sell a currency at one price and buy it at a lower price to make a profit. This market is the largest and most liquid in the entire world, with $5 trillion traded every day. It is open 24 hours a day, 5 days a week for banks, institutions, and individual traders.
On the other hand, the stock trading process consists of you trading the price of a stock or buying partial ownership of a publicly-listed company available on the stock market. You can easily do that through a stock certificate.
This market is also known as the equity market and it allows companies to gain capital, while also giving their investors the opportunity to have partial ownership of their shares. In contrast with the foreign exchange market, the stock market is less flexible, as your investments and trades depend on the activity of the company you chose.
Forex and Stock trading – Pros and Cons
Forex trading comes with its ups and downs, considering that the foreign exchange is such an imposing market. Let’s begin with the pros, because it surely has some! First of all, the size and the high liquidity of this market can be a great advantage for traders, as there are many potential buyers and sellers at any given price-level. Another pro is the flexibility of this market.
As we mentioned, it is open 24/5 and no matter where you’re located, there is always an open trading session in the world where you can buy and sell currencies. Last but not the least; a significant advantage is that forex trading has low transaction costs! You usually have to pay a fee requested by the broker – which is based on the difference between the buying and selling price of the currency pair, also known as the spread.
Given the extremely competitive nature of this market, the spreads of major currency pairs can be as low as 1 pip, meaning that in order to open a position size of $100,000 on the let’s say the EUR/USD pair, you would have to pay only $10!
Forex trading has its share of cons, too! The high liquidity can bring great profits, but it can also be very risky. This market shows greater sensitivity to all kinds of political and economic situations in other countries, especially when they are of an international importance and can change the value of currencies in a split second. Along with many other reasons, without a proper education, forex trading can be dangerously risky! The leverage available for this type of trading can also be profitable, but just as easily it can work against you if you enter a trade that goes the wrong way.
Stock trading has a solid list of pros, too! They are easy to buy and equally easy to sell. You can earn money in two ways: either by taking advantage of short-term trends, or by holding the stock in order for the company’s earnings and stock price to grow over time. Moreover, stocks rely on economy, meaning that when the economy grows, so do the corporate earnings – which is a reason to celebrate for stock traders!
Probably the biggest disadvantage of stock trading is that while investors do have the advantage of owning a part of the profits of the corporation, they can also risk losing the invested money in case stock prices fall due to bad business decisions, a bad economy or worse – if the company goes bankrupt. Also, stock trading is less flexible, and it can require a lot of time.
How to start Forex and Stock Trading
You can become a forex trader or shareholder in just a few minutes. All you need to do is find a professional and trustworthy online broker. TradeFW forex and CFDs broker is a broker chosen by millions of traders and it offers its client the two financial instruments. The process of becoming a forex or stock trader is the same. All you need to do is open the right account for you level of experience, in this case a standard account; fund it and enter a position or buy a share of your favorite company.
Although it sounds easy, and this step it actually is the easiest part – the truth is that successful trades will come with hard work and a lot of knowledge. Before you place a trade or invest in a stock, make sure to inform yourself and develop a strategy, as well as a trading plan with clear objectives. Be patient and learn from your mistakes! One day, the well-deserved profit will also come just in a brief second.
Forex trading, just like stock trading, has pros and cons – but the truth is that each investor knows which one to pick and turn its cons into advantages. Trading can become your career, a profitable one, but it takes time and hard lessons! Just be patient, you will get there, and it will be worth it!