Forex (foreign exchange) trading is often advertised as a wealth creation strategy that can offer traders a lavish lifestyle and a high degree of financial independence. For example, forex trading advertisements on social media often show pictures of traders driving fast cars, living in luxury apartments, wearing expensive watches, and trading foreign exchange from the beach. Sounds good, doesn’t it?
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?
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.
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.
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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.