You’ve likely heard that investing is an excellent way to grow your wealth, get out of debt and even build your savings. The problem, however, is determining which type of investing route you take.
For many, trading is a style of investment that is quite intriguing. Rather than simply buying a stock and holding it for years, an investor may buy and sell a stock within the same day or in a few weeks. Trading is risky, but it can also be quite rewarding.
If you want to go the trading route, the next question you should ask is what trading style? Forex and stock trading are two of the most popular options. They shouldn’t get confused with one another, as forex and stock are two different entities.
In today’s world, it’s relatively easy to get started with both forex and stock trading. Start with a bit of knowledge and signing up with the right broker (a MetaTrader 5 broker in India, for example). Open an account with their platform, set aside some money, and you’re basically ready to start trading.
Are you wondering if you should dive into forex trading or stock trading? We break down the differences between the two to determine which route to take.
Stock trading comes in various forms. You can go with the long-term stock trading option (considered more as investing), which is when you buy and hold a stock for several years, maybe even longer. Then, you have active traders, which trade roughly 10 or more stocks per month, and even day traders who buy and sell stocks within one day.
With stock trading, you’re buying shares of a company in hopes of capitalizing on daily price fluctuations. The goal is to make quick money right now within the stock market operating hours.
Forex (foreign exchange) trading deals with exchanging currencies from multiple countries. You’re trading national currencies against each other, which comes in the form of pairs. The foreign exchange market is not centralized, which means all your transactions are done through a computer network between traders worldwide (unlike the stock market). Because of this, the foreign exchange market is virtually open 24 hours a day.
You’ll need regulated forex brokers to get you started in forex trading. The difference here is finding a regulated broker, as not all are. Some forex brokers work with offshore accounts and aren’t fully compliant with regulations. However, there are many options available that are safe. Just look for their certificates on their website.
Which Do You Choose?
Deciding if you get into forex trading or stock trading comes down to personal preference. First, how much time do you have available? The stock market is only open Monday through Friday and available during standard business hours. Not everyone can make that work. Whereas you could forex trade at any time of day.
The forex market has high liquidity, meaning investors are continually trading currency pairs. You can almost guarantee that your trade order will work. The stock market has moments when there is no liquidity or investors aren’t trading at that specific time.
In the end, it comes down to your financial goals and how invested you are in trading. Both have their risks, but they both have the potential to have high rewards.
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.