Stock Market Basics - Should You Be Trading Stocks, Options or Forex?

Since this is a stock market basics article, I'll assume you're a beginner.

The first thing you need is a solid education in stock trading . I know it's not the hottest new thing. It's not sexy. Stocks do not hold the allure of near instant riches. You will not invest $1,000 today and be a millionaire two weeks from Tuesday as lots of people with expensive forex or options trading systems would like you to believe.

Fortunes have been made in each of these markets. But by whom? Mostly by professional traders.

Online trading has made the markets accessible to everyone with enough cash to open a trading account. I'm all for freedom of choice, but this is a double-edged sword if I've ever seen one. The public has been given the right to invest as it sees fit. We are now allowed to make as much money as we can figure out how to. We are also allowed to lose every cent we invest.

No protection. No recourse.

Do not be deceived by the existence of the SEC. Like the IRS, they are to be feared and obeyed as they possess life-ruining power. So, whatever you decide to trade, learn the rules and do not break them. However, the SEC is not in the business of protecting the public. If you've been alive for the past two years, I don't think I need to waste any more words convincing you of this.

The fact that everyone from government officials to financial gurus has been urging every man, woman, (and I think they're starting in on the children now) in this country to put their money into the stock market changes nothing. The markets--all of them: stock, options and currency--are designed to take your money.

This is the most important of stock market basics to understand before you go wading in. The markets were not made accessible to the public so that the public might become wealthy. The markets were made accessible to the public so that the fat cats might have more pockets to pick; namely, yours and mine.

So why trade?

Because in attempting to rob us, they are also giving us the opportunity to take sizable gains if we can manage to escape their many snares.

This is why I would encourage you to begin with equities: Of the three aforementioned investment vehicles, I believe stocks offer the amateur trader the greatest chance of success.

You would have to learn to trade stock before you could learn to trade stock options anyway. Learning to trade is time consuming and expensive.

You can't learn to trade by reading a few articles. You're going to have to read several books written by people with a track record of success. You may also want to take a course but avoid those "free" seminars that end up costing you thousands. You might even want to subscribe to a trading newsletter. Again, avoid trading services with subscription fees in the thousands.

I'm not saying that these services aren't any good. Some of them are, but you need experience to cherry pick the good ones. For now, if you feel the need for the extra guidance these subscription services offer, feel free to try one of the less expensive ones. $50 a month is quite reasonable, as long as they have a favorable cancellation policy.

You would not need to learn to trade equities before learning to trade currency. Forex is unrelated to stocks. So why do I prefer stocks to currency?

Risk.

Which brings me to another stock market basics rule: You've got to manage your risk.

Currency markets never close. This is often touted as a benefit. It isn't.

One of the reasons I sleep so well at night is because the stock market is closed and I don't have to worry about my account balance decreasing until 9:30 the next morning. Then there are those days when I'm sitting on pins and needles waiting for the closing bell to toll. I cannot imagine what having my money in a market that never closes would do to my nerves.

We've all heard of the forex housewives who have turned $1,000 into $100,000 in a year, so we know amateurs can achieve success in the currency markets. We've also heard of the unfortunate forex housewives who have lost their entire account almost overnight. This gives us an idea of the level of risk.

It's much easier to protect your capital when trading stocks.

And that's stock market basics - rule # 1: Protect your trading capital at all times.