In reality though, forex trading is quite hard. If you’re looking to make big money in the financial markets, I think there are much easier strategies to pursue.

Most forex traders lose money

While some forex traders do make good returns trading currencies, the majority lose money. How do I know this? Forex brokers admit it!

For example, on the forex.com website, it says that 69% of its retail investor accounts lose money. Meanwhile, on the fxcm.com website, it says that 70% of its retail investor accounts lose money. In other words, seven out of 10 people trading forex on these platforms are losing money (among beginners it’s probably actually closer to nine out of 10).

Why do so many forex traders lose out? Well, one reason is that the currency markets are notoriously volatile. This means that to be successful, you need to have a really disciplined approach and be able to separate your emotions from your trading strategy. A lot of people just don’t have the right temperament

Ultimately, to make consistent profits from the foreign exchange markets, it takes years of practice. Most people give up before they get there. 

An easier way to make big money

If your goal is to make big money in the financial markets, I would forget about forex trading and instead look at investing in smaller growth companies.

As small companies grow and become more profitable, their share prices tend to rise as well. This means that if you pick the right stocks, you could potentially turn £1k into £2k, £5k, or even £20k without really doing much. 

Here are some examples. In early 2015, shares in online fashion retailer Boohoo Group were trading for just 25p. Today, however, the stock is trading at over 280p, meaning that if you had invested £1k in the company in early 2015, it would now be worth around £11k. Similarly, five years ago shares in vehicle-testing group AB Dynamics were trading for around 165p. Recently, however, those shares were trading above 2,800p, meaning that you could have turned £1k into around £17k in the space of less than five years.

Of course, not every smaller company performs like this. Just look at Sirius Minerals. It has lost around 70% of its value over the last five years. As with any financial strategy, it’s important to be aware of the risks.

Yet if you focus on profitable businesses that are growing quickly, diversify your money over a number of different companies in different industries, and have patience, you have a good chance of making money, in my view.

If you’re looking to learn more about making money from smaller companies, you’ve come to the right place.

The post Forget forex trading. I think this is a much easier way to make big money in the financial markets appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Boohoo Group. The Motley Fool UK has recommended AB Dynamics and 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.

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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• 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?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

I am sorry to be the bearer of bad news, but most people lose money on leveraged currency trading — and for good reasons.

FTSE 250 spread betting and CFD firm IG Group is the biggest operator in this sector. It says that 76% of its retail customers lose money. The figures are even worse at rivals Plus500 (80.6%) and CMC Markets (80%).

Not all of the customers who lose money are trading forex, but many are. The foreign exchange market is deep and liquid, making it ideal for chart-based trading. But the reality is that spotting chart patterns and entry and exit points is nowhere near as easy as so-called ‘gurus’ would have you believe.

Most of us don’t put in the years of study and practice needed to become an expert at this technique. And when you juice up your trading by using leverage (i.e. borrowed money), losses can quickly wipe out your account balance.

An easier way to make money

Luckily, I believe there is a much easier way to make money from financial trading. My preferred approach is to focus on investing in well-known dividend stocks with a history of profitable growth.

This may sound like a dull and slow way to get rich, but it does have some advantages.

Dividends: get paid to wait

I only buy dividend stocks. This means that as a general rule, each of my holdings provides cash income for me each year. I prefer high yield stocks, so I usually get a cash return of about 4%-7% on each position in my portfolio.

Because I’m still working and saving for retirement, I don’t withdraw this cash from my stocks and shares ISA. Instead, I reinvest it in more dividend stocks. My aim is to build a growing, passive income that will eventually help fund my retirement.

It’s worth remembering that reinvesting dividends is a powerful way to build wealth. A 5% dividend yield reinvested for 10 years would deliver a 63% return, even without any share price gains.

Which stocks should you buy?

The majority of the stocks in my portfolio are big companies from the FTSE 100 and FTSE 250. Among my top income payers are Imperial Brands (8.1% dividend yield), Aviva (7.6% yield) and ITV (6.1% yield).

As you can see these are mostly big, familiar businesses with long histories. Companies like these may go through difficult periods, but they usually continue to pay dividends and very rarely go bust, unlike more speculative firms.

An even easier choice

Picking stocks still requires some effort and skill. If you’re looking for an even easier way to make money from the stock market, I would suggest investing your cash in a FTSE 100 tracker fund.

As the name suggests, these are funds that simply tracks the movements of the 100 biggest publicly-traded companies on the London stock market. Investing in a FTSE 100 tracker also means that you’ll receive dividends from all the stocks in the index.

At the time of writing, the FTSE 100 has an overall dividend yield of 4.4%. My sums suggest that a 4.4% yield reinvested for 10 years would provide a 54% return, even in a flat market.

The post Forget forex trading. This is where I’d invest my money appeared first on The Twelfth Magpie.

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• 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?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of Aviva, IG Group Holdings, Imperial Brands, and ITV. The Motley Fool UK has recommended Imperial Brands and ITV. 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.

But is this kind of lifestyle realistic? Could forex be the key to quitting your 9-to-5 job and living a life of luxury?

Financial freedom

Plenty of people do make good money from forex. If you’re a disciplined trader and stick to a proven forex strategy, it’s possible to make big money trading the currency market. And you can literally trade from anywhere, meaning that forex can offer a lot of freedom.

However, before you rush out and open a forex account, it’s important to understand that trading the forex markets successfully is not an easy task. It can take years to perfect a trading strategy and many traders end up losing a lot of money while they’re learning the basics of forex trading.

Most people lose money

Indeed, the percentage of forex traders that end up losing money is actually quite concerning. While it’s hard to get an exact figure on the proportion of traders that blow up their accounts, according to some sources, up to 95% of traders end up losing money.

Certainly, disclaimers made by some of the UK’s top trading platforms don’t make for good reading. According to IG Index, 81% of retail investors using its platform lose money, while CMC Markets says 80% of investors lose money on its platform. Looking at these figures, forex trading perhaps isn’t all it’s cracked up to be.

An alternative way to make money

In my view, investing in shares is a much easier way to generate wealth. That’s because stock markets tend to rise over time meaning the longer you invest for, the less chance you have of losing money, and the more chance you have of increasing your wealth.

Stock market investing is often seen as a ‘get-rich slowly’ strategy, because stocks tend to return around 7-10% per year on average over the long run. However, if you’re looking for faster gains, there are a number of strategies that you can pursue which can result in much higher returns.

Take small-cap investing, which focuses on smaller, faster-growing companies for example. With small-caps, it’s not unheard of to make five, 10 or even 20 times your money on a particular stock in the space of just a few years. 

Huge gains 

Just look at Fevertree Drinks – which makes those fancy mixer drinks you see in every second bar these days. A £2,000 investment there four years ago would now be worth nearly £30,000. Another good example is Boohoo Group, the online fashion retailer. A £2,000 investment there four years ago would now be worth nearly £16,000.

Of course, these are just a few examples. Not every small-cap stock performs like this. And the share prices of smaller companies can also fall significantly too.

But the takeaway here is that if you’re looking to increase your wealth, the stock market does offer an excellent alternative to forex trading. If you’re interested in learning more about making money from stocks, you’ve come to the right place.

The post Considering forex trading? This could be an easier way to make money appeared first on The Twelfth Magpie.

More reading

• 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?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.