One thing I often see advertised on social media these days is forex (foreign exchange) trading programmes that promise to make traders very wealthy in a short period. The ads show pictures of traders driving fast cars and living glamorous lifestyles and make it sound as though anyone can make millions from forex. No doubt, many people sign up to these programmes in the hope of making a fortune and living an independent lifestyle. So is forex trading an easy way to make money?
Don’t believe the hype
While it’s possible to make money trading forex if you know what you’re doing, it’s important to realise the vast majority of people who try their hand at this form of trading end up losing money. Indeed, according to some sources, up to 96% of forex traders lose money. Forget the Ferrari and the Rolex – most forex traders end up going backwards.
The statistics are worrying
What’s interesting is that spread betting providers that offer forex trading services here in the UK now have to disclose on their websites just how many traders are losing money through their platforms. The statistics don’t make for good reading.
For example, a glance at IG Index’s website reveals that 81% of retail investor accounts lose money when trading spread bets and CFDs with the company. Similarly, CMC Markets says on its website that 80% of its retail investor accounts lose money through its platform.
Now these percentages don’t relate specifically to forex because they also include those who are trading other instruments on a short-term basis through spread bets and CFDs, but you get the point. The bottom line is that most people who are trading forex are losing money.
An easier way to make money
If you’re interested in boosting your wealth (and who isn’t?), investing in the stock market could be a much better idea than trading forex. While stock market investing is often viewed as a ‘get rich slowly’ strategy, you may be surprised at the returns some investors make using high-growth investment strategies.
One approach to consider if you’re looking for faster gains is investing in smaller companies. They tend to grow faster than their larger peers and can subsequently offer larger returns (although they can also be more volatile).
Just look at the performances of stocks such as Boohoo and Fevertree Drinks in recent years. In the last three years, Boohoo has risen 340%, while Fevertree is up around 335%. This means that a £5,000 investment across these two stocks would have grown to around £22,000 in just three years.
Investing in growth-focused funds could be another option for those looking for higher growth. One example here is the Polar Capital Global Technology fund which invests in technology stocks. It’s up around 175% over the last five years, meaning a £5,000 investment in this fund would have grown to nearly £14,000 in that time.
The takeaway here is that the stock market offers investors the chance to make excellent returns. Compared to forex trading, I see stock market investing as a much easier way to make money.
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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.