Are you a new or up-and-coming trader wondering what the best market is for beginners? If so, you’ve come to the right place! Here we’re taking a look at whether beginners prefer to trade forex or commodities.
Many traders are struggling with what exactly is the best place to start. It’s actually one of the most common challenges that new traders are facing. You hear so much about things like the dollar remaining strong, while others claim that the biggest opportunity right now exists in commodities like gold, silver and even oil. Figuring out what to make of all this is no easy task!
To clear up all of this confusion, we asked two financial markets experts what they believe is the best market for a new trader to start trading in and where conditions are most suitable for beginners in today’s market.
Trade forex for high volume and liquidity
The foreign exchange market is where the majority of traders buy and sell every single day. And there’s a good reason for this! The most popular pairs in the forex market are available to traders with incredibly tight spreads, meaning the difference between the buy and the sell price of the currency is small. When spreads are tight, it’s easier to profit!
As a new trader, you’re probably going to be making some mistakes and some bad trades every now and then. That means a lot of buying and selling of instruments that you won’t necessarily make significant profits from.
You, therefore, need to keep the difference between the buy and sell price of these instruments as small as possible. If you can do that, your trading strategy will take play its part, which is to give you the edge you need to profit from the market.
In the forex market, the tightest spreads are usually found on the most popular pairs. By far the most popular one is EURUSD. This pair is one of the easiest trading instruments to understand in all of the financial markets.
Commodities are for ‘fundamentalists’
As opposed to the incredibly liquid and popular forex market, commodity markets trade in a different way. Originally, this market was set up for commodity producers like farmers and miners. They’d protect themselves against price fluctuations by ‘locking in’ prices for the commodities they were planning to sell in the future. Today this is still the case.
However, an army of speculators has appeared between the buyers and the sellers of the physical commodities. These speculators try to profit from even the tiniest price changes. An important role is still played by these so-called ‘non-financial players’.After all, producers are still buyers of commodities. This means that commodities still tend to be more driven primarily by fundamentals. An example of this would be things like the weather impacting the price of coffee or soybeans. Political or economic uncertainty also tends to drive up the price of gold.
To compete with the big boys in the commodity market, you should, therefore, have a deep understanding of these fundamental drivers. Also, remember that spreads are wider here since there are fewer independent traders like yourself active in this market. However, for those who can figure out the secrets behind what’s influencing commodity prices, the rewards can be great. Riding the stable and long-lasting trends higher in one of the big commodities is an experience every trader is sure to remember!
As usual, our experts do not exactly agree on what the best market for a new trader is. However, we should point out that our forex market expert makes a valid point. It’s demonstrably true that looking for instruments with tighter spreads will mean that your costs to trade are lower. If you’ve come across a trading strategy you want to test out – such as this trend trading strategy – EURUSD may well be your best bet! If you're thinking more of a long-term investment, perhaps gold and other metals might be a more attractive option.
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