Thinking of investing some money into forex or stocks, but can’t decide which one to invest your money into? Both forex and stocks can generate large returns, however there are a few notable differences. This post compares the two and their individual benefits.
Why Invest in Forex?
Forex (‘foreign exchange’) involves trading different world currencies. It involves buying a currency, waiting for it to rise in value and then selling it at a profit. Foreign currencies are typically traded via a forex broker platform. Nowadays, this typically involves trading via a website or an app.
Prices are typically affected by geopolitical events. Therefore it can be important to have a good idea as to what is going on in the world when influencing your decision as to which currencies to buy and sell. Sites such as The Forex Library offer articles, charts and courses to help.
Forex can be quite volatile at times allowing investors to make a lot of money in a short amount of time. You typically have a much higher level of leverage when investing in forex as opposed to investing in stocks, which allows you to invest more while contributing less funds upfront.
Another benefit of forex trading is longer trading hours. While you cannot trade at weekends, you are not limited to 9 to 5 trading hours during weekdays as you are with stocks. This added flexibility may be better suited to certain people’s lifestyles.
Why Invest in Stocks?
Stock trading involves buying and selling shares in companies. As with foreign currencies, the aim is to buy stocks and sell them once they’ve risen in value in order to make a profit. To trade stocks, you must set up a trading account either with the help of an in-person stockbroker or with the help of an app or software.
Prices of stocks can be affected by geopolitical events, but are mostly affected by public faith in individual companies and industries. Events like positive earnings releases and launches of anticipated products may increase the value of a company, while events like loss reports or scandals may reduce the value of a company. This post at Get Smarter About Money explains more.
While you do not always have as much leverage when trading stocks, some platforms allow you to buy fractional shares. The stock market is overall less volatile than the forex market – it’s possible to buy and hold stocks belonging to big established companies and see a fairly slow but steady return if you’re looking for a secure investment. That said, there are much more volatile stocks that you can choose from if you want to take a risk and possibly make a faster return.
You can only trade stocks during 9 to 5 weekday hours (of course, due to time zones, this does mean that US stocks or European stocks are traded at different hours). While some people may find this more restrictive, it can also mean not having to worry about missing out on sudden price shifts in the middle of the night.
Forex or Stocks – Which is Right for Me?
All in all, you should invest in forex if you have an interest in world events, if you’re looking for a lot of leverage or if you’re looking for greater trading flexibility in terms of hours. You should meanwhile invest in stocks if you have more interest in companies or if you’re looking for a more secure hands-off long-term investment. Alternatively, why not invest in both?