Forex trading

Social media often portrays forex trading as a glamorous hobby. For example, ads on Facebook and Instagram regularly show forex traders living in expensive apartments, driving fast cars, and showing off their luxury watch collections. These ads will lead you to believe that you can achieve this lifestyle by trading forex just a few hours per day.

However, in reality, most forex traders are not living this kind of lifestyle. In fact, according to some sources, up to 95% of people that try their hand at trading forex lose money.

Disclaimers made by some of the UK’s top forex trading platforms certainly suggest that forex trading is challenging. For example, forex.com says that 70% of its clients lose money, while FXTM says that 83% of its clients lose money trading forex.

So, while there are some people that do manage to generate a second income from forex, it’s clear that most people don’t get rich from it. If you’re looking to grow your wealth, it may not be the best option.

Stock investing

Investing in stocks is very different to forex trading because, over the long term, stock markets tend to rise. This means that if you put together a diversified portfolio of stocks and invest for a number of years, there’s a good chance you’ll increase your wealth. Unlike forex, the odds are in your favour.

Just look at the long-term performance of the stock market. According to Investopedia, between 1926 and 2018 the S&P 500 index delivered an annual return of 10%. Meanwhile, according to the most recent Barclays Equity Gilt study, UK equities have delivered an annual return of around 5% above inflation since 1899. These figures may not sound so exciting at first, but if you were to invest £10,000 a year and you generated a 9% return on your money every year, your portfolio would be worth one million pounds in around 26 years.

There are ways to generate much higher returns from the stock market too. For example, small-cap investing, which focuses on smaller companies, is one strategy that can deliver fantastic returns over time. Had you invested £5,000 in Fevertree Drinks when it floated in late 2014, that money would now be worth nearly £90,000. Similarly, an investment of £5,000 in online fashion retailer Boohoo five years ago when it was an under-the-radar smaller company would now be worth nearly £30,000.

Of course, not every stock performs like this, but the message is clear – the stock market can help you boost your wealth. When it comes to forex trading versus stock investing, the choice is a no-brainer, in my view.

The post Forex vs stocks: what’s the easiest way to get rich? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Boohoo Group. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The risk of loss is, of course, relatively high. That’s partly why it may be a better idea to buy shares in a growth stock such as AstraZeneca (LSE: AZN). It appears to offer an improving financial outlook, while also trading on a fair valuation and having defensive characteristics.

Alongside another growth share that released an encouraging update on Thursday, AstraZeneca may offer a better chance of generating high long-term returns than forex trading.

Growth potential

The stock in question is budget hotel operator easyHotel (LSE: EZH). Its trading update for the first six months of its financial year showed a rise in system sales of 24% to £19.9m, while revenue increased by 47% to £7m. Its hotels outperformed the wider UK market, with consumer confidence coming under pressure. But this may suit the business, since its budget offering could prove popular among consumers who are looking to trade down to cheaper options.

The company’s actions to drive occupancy appear to be having a positive impact on its performance. It is also seeking to capitalise on economic weakness in order to expand its development pipeline in target destinations.

Looking ahead, easyHotel is expected to post a rise in earnings of 300% in the current year. It trades on a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it offers excellent value for money. While potentially risky due in part to its small size, it could offer high returns in the long run.

Changing business

Although AstraZeneca may not be considered a growth stock by many investors due to its disappointing performance over recent years, the investment it has made in its pipeline has led to a changed business. In recent quarters it has reported improving growth, with its bottom line due to rise by around 13% in the current year. This suggests that the challenges it has faced in recent years in terms of the loss of patents on blockbuster drugs are beginning to fade.

As a result, now could be a good time to buy the stock. It trades on a PEG ratio of 1.7, which indicates that it offers a wide margin of safety. That’s especially the case since the company has a defensive business model that is relatively independent of the wider economy when it comes to delivering growth. And, with it having strong cash flow, its pipeline investment could increase over the medium term.

Certainly, trading forex may sound more exciting than buying shares in a healthcare company such as AstraZeneca. But with the world’s population growing and ageing, the company could have a real growth opportunity, while its stable balance sheet and resilient growth prospects mean that its risks may be significantly lower than those experienced when trading forex.

The post Forget forex trading: I think the AstraZeneca share price offers an easier way to get rich appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The problem, though, is that forex trading can be risky due in part to its volatility, as well as the fact that many investors use leverage through CFDs or spread betting. As such, investing in shares through tax-efficient accounts such as an ISA could prove to be a better means of long-term wealth generation.

Risky business

While the idea of potentially making a quick, and substantial, profit from forex trading may be appealing, the reality is that forex markets often move rapidly, and somewhat randomly, over the short run. Even looking at a variety of technical and fundamental indicators can lead to poor decision-making by investors. And, should the market move against them, they can lose significant sums of money in a short space of time.

Since leverage is often used to trade forex, an investor can see their losses mount up very quickly. Due to the volatility of forex markets, they may even lose more than their initial investment. As such, it could be argued that it is more akin to gambling, rather than seeking to invest in businesses that add value in one way or another.

Stock market investing

By contrast, buying shares can prove to be a far less risky endeavour. Although the stock market may be volatile at times, over the long run its general direction of movement has been upwards.

For example, the FTSE 250 has recorded an annualised total return of over 9% in the last 20 years. While that may not sound like a significant return to someone who is aiming to double their money in a short space of time, even modest investments can end up being worth significant sums of money when compounding is allowed to have its full effect. For example, £500 per month invested in the FTSE 250 earning 9% per annum could be worth over £300,000 after 20 years.

Risk/reward

Certainly, investing in the stock market may be less exciting than forex trading. Many listed companies may not offer the same level of volatility as currency trading. As such, their return potential may be lower. At the same time, though, the risk of loss appears to be significantly reduced, with a portfolio of shares in high-quality companies seemingly likely to deliver high returns in the long run.

As such, for individuals who are seeking to increase their wealth over the long run, the tried-and-tested method of buying shares and then reinvesting income received could be a sound choice. Otherwise, it is all too easy to lose significant sums on currencies which, in the short run at least, may be subject to random movements in price that are impossible to accurately predict on a consistent basis.

The post Forget forex trading. I think this could be a better way to get rich appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?