As a beginner to trading and investing, you should start by trading stocks and not forex (aka currencies) or commodities (raw materials, like gold and oil).
The stock market is the easiest market to trade simply because unlike other markets, the stock market has a 1 directional bias (i.e. goes up more often than it goes down).
This means that trading forex and commodities is harder than trading the stock market. Here’s the data to prove it.
Here’s a chart of the S&P 500, on a log scale. The S&P 500 is the U.S. stock market’s index (i.e. the best representation of the U.S. stock market).
As you can see in the above chart, the U.S. stock market tends to go up more often than it goes down, especially the further forward you go in the future.
This means that if you buy a random stock, you have a >50% chance of making money. The longer you hold that stock, the higher the probability of making money.
The probability of commodities going up vs. down is pretty much 50-50.
Here’s a chart for gold.
As you can see in the above chart, gold has a 50-50 chance of going up vs. down, regardless of how long you hold it. This means that if you buy gold, you have a ~50% chance of making money.
The same thing is true for silver. (Gold and silver prices tend to move in the same direction).
Here’s a chart for oil.
As you can see in the above chart, oil has an approximately 50-50 chance of going up vs. down, regardless of how long you hold it.
The probability of the U.S. Dollar going up vs down is pretty much 50-50. This applies to various currency pairs such sa EURUSD, USDJPY, USDCAD, GBPUSD, AUDUSD, etc.
Here’s a chart of the U.S. Dollar.
As you can see in the above chart, the U.S. Dollar has an approximately 50-50 chance of going up vs. down, regardless of how long you hold it.
Trading and investing is hard enough already. Why would you want to trade a market where the random probability of the market going up vs. down is 50-50 like forex or commodities?
Let’s put it this way. If you knew nothing at all and just buy stocks, there’s a significantly >50% chance that you will make money (because the stock market has a significantly >50% chance of going up in the long term).
But if you knew nothing at all and trade commodities or currencies, you have a 50-50 chance of making money in the long run (because these markets have a ~50% chance of going up in the long term).
So why do so many pros suggest that you trade forex & commodities?
- The brokers love forex. Large trading volumes = large commissions. Commissions that come out of your pocket and into the broker’s pocket.
- Traders often trade forex & commodities with large amounts of leverage. This enables gurus to give their followers the impression that their trading is ridiculously profitable. E.g. “I made 20% on this single forex trade!” (leveraged 10-to-1). Of course, they don’t tell you about the -20% loss they took on other forex trades.
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