In the complex world of trading, getting through the intricacies of the financial market can be significantly difficult for most traders, especially beginners. Beginners with little or a limited amount of knowledge can enter these markets with the thought of gaining profits, but, unfortunately, end up being caged in the complexities of different terminologies and trading strategies.

Thus, as a beginner, it is important to choose the market that aligns with your knowledge, risk tolerance, and investment goals. In this comprehensive guide, we will explore the forex and stocks to help beginners make an informed decision.

What is Forex Trading?

Forex, or foreign exchange market is the largest financial market that involves trading by buying and selling two different currencies simultaneously as currency pairs with the purpose of gaining profit from the difference between their prices, i.e., exchange rate. In forex, three different types of currency pairs, i.e., major, minor, and exotic currency pairs are traded 24 hours a day for 5 days a week.

Pros of Forex trading

Some of the prominent advantages of trading forex are:

·       Huge Market: Forex is the largest trading market with a daily average trading volume of approximately $6 billion. Here, traders can choose among thousands of currencies and trade on their terms for 24 hours a day for 5 days a week. However, the trading hours may change in March, April, October, and November depending on the shift of countries to daylight savings.

·       Capitalise on high liquidity: High liquidity in the forex allows traders to execute a trade within a short time meaning that traders can instantaneously buy and sell the currency, making it a profitable trading type under normal conditions as well. Moreover, you can set a stop-loss and limit order to predetermine your profit and loss level.

·       Trade on Leverage: Leverage allows you to hold a position with a smaller amount (called margin) compared to the actual price of the trade. Using leverage, trades can amplify their profit, but it is worth remembering that it can also increase the risk to the capital. Thus, it is important to use leverage with pairs with effective forex trading strategies.

What is Stock Trading?

Stocks represent the partial ownership of a company’s assets along with its future earnings. When a trader, buys a stock, it means that he has purchased a small part of the company and become a stakeholder.

To most people, buying and selling stocks is the traditional way of making a profit from an investment. However, the amount of profit earned from stocks depends upon various factors, including, supply and demand, economic conditions, the performance of the company, investor sentiments, etc.

Pros of Stock Trading

Some of the advantages of trading stocks include the following:

·       Relatively Good Return: One of the major advantages of CFD stock trading is that it allows you to grow your investment portfolio in tandem with the economy. With the expansion of businesses and companies, the value of shares also increases, making it more profitable.

Having a glance at the past, it can be easily identified that the stocks and the overall performance of the economy have a strong correlation, meaning with the increase in the economy, the stock prices also rise providing investors with ample opportunity to grow their investment portfolio with the growth of the economy.

·       Low barrier to entry: Unlike real estate or private equity, entering the stock market is relatively easy. The investor has the choice to start investing in the stocks with as much capital as they want to. With such flexibility, the traders get familiar with the stock markets without risking much capital and gradually increase their investment over time.

·       Protection against Inflation: Inflation harms the buying power of your money with time, but stocks have been a reliable hedge against inflation. It has the potential to provide investors with returns that overcome inflation, ensuring your investment portfolio retains its actual value over time, even for years to come.

Which is Better for a Beginner?

As a beginner, the answer to the question of whether you should try forex or stocks depends upon your financial goals, risk tolerance, and preferred trading styles. This is explained below-

1. If you are a short-term trader, i.e., opens and closes a trade for a short time, ranging from minutes to hours, then choosing forex can be preferred as it offers inexpensive costs of executing trades. Mostly, forex trading brokers require traders to have enough trading capital to maintain the margin requirements.

2. If you are a medium-term trader, i.e., prefer to hold positions for one or more days, you choose both markets. But it is worth remembering that this kind of trading demands a comprehensive analysis so traders must proceed accordingly.

3. If you are a long-term trader, i.e., hold positions for months or even years, then stock trading can be a preferable choice for you as the forex market’s volatility can vary in direction compared to the stock market.

However, both these markets possess risk, thus, for a beginner, it is necessary to develop a comprehensive understanding of the intricacies of these markets, develop a strategy and make informed decisions.