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Forex Trading or Penny Stocks: Which is Better Investment

Date Added: August 05, 2017 12:56:38 AM
For beginner investor that has only a limited amount of capital to be invested, two areas where the money can be potentially invested are forex trading and penny stocks. Both have their own appeal because a fortune can be built out of the relatively small capital that the investor starts with using either of these venues in a short span of time, say a few years.

Regular stock or bond trading requires a larger amount of money to start trading with. Penny stocks and forex trading can be started by those investors that just have about $500 or $1000 as their initial capital outlay. It is good news for the small time investors that trading in regular stocks do not offer the exponential potential for growth that exists for penny stocks or the high leverages that are present in the forex market that can help to multiply the capital. 

Penny Stocks

Penny stocks are most suited for those investors that are comfortable with speculation and have some time on their hands to do the research that is required to trade them successfully. What are penny stocks? By definition they are typically any stock that trades under a price of $5. Therefore, they would include many of those stocks that are regularly traded on the exchanges. They are also the ones that are traded over the counter. The one main difference between penny stocks and others that are traded on the exchange is that information regarding the companies issuing penny stocks is more difficult to obtain. Stocks that are traded on the pink sheet markets are not required to register with Exchanges Commission and therefore not as strictly regulated. They are not required to provide as much information to the public as the others. 

Any investor that wants to invest in penny stocks should therefore spend a sufficient amount of time to obtain in-depth information about these companies so that their investments turn out to be worthwhile. In this connection, the beginner investor should also get used to the fact that a majority of these investments are likely to be speculative and in the high-risk category that may not pay off in the long run. 

Forex Trading

The forex market represents yet another class of assets wherein the traders can invest in basic assets such as currency pairs rather pick out an individual stock or fund. 

The most attractive aspect of forex trading is the high amount of leverage that iut offers. An investor has to put up only about 1% of the total value of the contract in forex trading. Any enthusiast can get started with as little as a few hundred dollars in hand. In some cases it is possible for a trader to just sink in a couple of hundred dollars only to see a 50% profit in a few minutes’ time. Coming to think of it, there are very few other investment opportunities that offer this kind of leverage and potential. 

Another advantage of forex trading is that the market is highly regulated in many of the countries. Information regarding major currencies is freely available to anyone that wants it. This type of trading is therefore appealing to those traders that prefer to speculate less, offer high leverage and want to trade in the regular exchanges. Penny stocks are appealing to those that are ready to do extensive research asbout the companies before investing in them.

At one point in time stock trading was relevant to only one point. Stocks could be traded only in specific locations. However, this restriction does not exist now and for forex trading, there was no restriction of any kind at any time.

Whereas stock brokers offer a leverage of 1:2 at a maximum, a forex trader can hope to get a leverage of 1:50. With an investment of $100, a trader can make $200 in the stock market and $5000 by trading forex.

It is also important to keep in mind that high leverage is not everything. This high leverage also multiplies the risk that is involved. With the high leverage that is offered by forex brokers the chances that the capital gets wiped out by bad trades is also high.

Some of the forex brokers also charge a lower commission than a majority of the stock brokers. This is a great advantage for beginner traders.