When you talk about trading, a lot of beginners think of stocks, cause that’s the thing they know best. But the world of trading is full of market options, and each have their own qualities. Some are riskier than others, and some are great tools to learn about trading in general. Depending on your goals, you’ll have to choose the right market and the right broker. Here’s what you need to know.
Trading Markets for Beginners
When we talk about different markets in trading, we talk about the different ‘things’ you can buy or sell. While stocks are securities that represent the ownership of a fraction of a corporation, you might also choose to invest in a currency. In that case you’d no longer be trading in the stock market, but the foreign exchange market, or forex for short.
Those are still easy to understand, but there’s also more theoretical concepts, like trading ‘futures’, which is basically agreeing to buying or selling a predetermined amount of an asset at a future date and price. Looking at those, you might understand why some trading markets are better suited for beginners than others.
Forex trading is a decentralized global marketplace, where traders speculate on world currencies. The make gains or losses depending on the exchange rates at the time they buy vs. sell their positions.
The market attracts investors, because:
- it has 24 hours of trading a day during the week
- the transaction costs are low
- the volatility differs between assets
- there are many currencies to choose from
- the market size is manageable
The forex market is unique, because the worth of a currency can only be stated in comparison to another currency. With this two-sided convention a forex trader trades in pairs. They choose one currency to invest in and which currency they want to trade against. If the trader has high hopes for the US economy, and they invest in it, they can buy the US Dollar against the Euro or against the British Pound (for example) and then decide which they think will fare worse. This gives you the flexibility to invest in multiple currencies, without going against your own assets.
- If you buy the USD against the Euro (USD/EUR) and the quote is 1.5000, 1 Dollar is worth €1.50.
- If the price were to rise to €2, the Euro will decrease in value.
- If many EU citizens exchange their Euro for Dollars, the value of the Dollar rises, and the Euro falls.
But that has no influence on the Dollar value in other pairs, for example if you had also invested in the before mentioned USD/GBP.
Forex trading is popular among beginners, because it’s open 24/7 during the week, has low transaction costs and the many different forex pairs provide many opportunities for profitable trades. If you decide to trade in the forex market, it’s best to look for a professional broker with regulations by financial authorities and high security standards. Review sites like trusted-broker-reviews.com/forex-broker help you find the best option.
Stock trading is probably the most famous form of trading. Most movies or shows that show Wall Street or similar trading hubs speak of stocks. Since the concept is vaguely familiar to most, it’s the first thing they consider when going into trading. There are some good points, that make it valuable for beginners. The stock market as a whole is easy to understand, and it does not force you to use risky techniques like leveraging, where you can lose more money than you actually have put into an account.
In most cases it is easier to understand who a firm is, what they do, and why they are making money. Following these movements for a currency, that is tied to the development of an entire country and the world as a whole, can be a little harder.
Stock markets also come with more or less volatile markets. You as an investor have the choice of whether you want to risk much and win much or take a conservative approach and just start to test the waters. Since the stock market is pretty straight forward, it’s a good way to learn about trading without loosing too much, if you choose not to gamble too much.
Both forex and stock trading are suitable for beginners. Which market is the right one for you, is mostly depending on your taste and talents. These two are some that allow you to make your first steps and learn the ropes. The stock market is a bit safer, if you take it slow, while the forex market teaches you more basic and complex techniques about trading as a whole. You can profit from these experiences when you finally decide that the other trading markets look promising too.