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Forex Trading or Stock Trading: Which One Is For the Busy Professionals?

20150523 - forex tradingThe short answer is both.

Depends on how busy you are, or how “involved” you want to be with your investing process, both can be right for you as long as you are comfortable trading them.

The stock markets offer a large number of stocks for you to choose from, the decision making process can take weeks. And since the stock market is essentially a market place, it is possible that it may take a while for you to sell a stock of low volume.

There is, of course, a way around it. For those absolutely too busy to study individual stocks, a mutual fund or index fund/ETF would be the best choice. Using the dollar cost averaging strategy combined with indexing, an investor can spend almost zero time in the investing process, because the decision making or stock picking process would be completely eliminated.

The dollar cost averaging is also known as DCA, this is the practice of spending a fixed amount on a particular investment on a regular basis and completely disregarding the share price. By doing this, the cost per unit of the investment become lower and lower over time. In the long run, the investor is likely to come out on top.

For example, you decide to spend $300 to purchase company A’s stock every month, in the first month, the stock price of company A is $30, so you purchase 10 shares, in the second month, the share price drops to $25, and with $300, you purchase 12 shares, in the third month, the share price drops even further to $20, you purchase 15 shares with your $300. By now you have spent $900 investing in company A and you currently own 37 shares, the average price per share is approximately $24.3, instead of the $30 that you bought in the first month.

As you can see, the DCA strategy is designed to lower your risk. The “indexing”, is a passive investment strategy, in which an investor does not own any individual stock and invest in the entire market instead. The indexing has a large follower base with the belief that in the long term, the market will advance even though individual stocks may not.

Together, the DCA-Indexing is perfect for anyone who is too busy to, or doesn’t want to spend any time on decision making when it comes to investment strategy or trading.

What if you have a little time to spare?

For those who would like to be more active, but not too much, forex trading might be a better choice than stock trading. Given the completely different nature of the forex market, the DCA strategy and indexing approach won’t work quite as well in forex trading if at all. Forex Explained here if you are not all that familiar with the forex trading process.

Over 90% of the forex trading is done in 8 currencies, this means that you only need to follow these 8 currencies to make an informed decision when you trade forex. It also helps that the forex market is open 24 hours a day and 5 days a week, allowing more flexibility for its market participants.

“Following currencies”

There are a couple of things forex traders focus on to make informed trading decisions, they are the GDP (Gross Domestic Product), which is commonly viewed as the measure of a country’s economy; retail sales report, which indicates the broad consumer spending patterns in a country; and CPI (Consumer Price Index), which measures the changes in the consumer goods prices.

Additionally, forex traders also tend to pay attention to the politics, macroeconomics of the regions and the countries to anticipate movements in currencies. There are also a number of other reports that are often followed by forex traders, such as PMI (Purchasing Managers Index), PPI (Purchase Price Index), ECI (Employment Cost Index), housing and durable goods statistics.

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AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

1 Comment

  1. I agree to what you have said about forex being an easier option, however just as a point of discussion I would like to add that since forex and commodities are non-productive assets, therefore the predictability is much harder than stocks whereby dividends and a company’s general health check can be made to minimize the risk, but that’s just my opinion.


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