Forex vs Real Estate

 There are several types of investment, two of which are forex or foreign exchange and real estate investing. For those trying to decide where to venture into, here are the pros and cons of both investment types.

 

By Definition

 

In foreign exchange investment, you basically purchase a currency (like you would stocks in the stock market), wait for its value to rise against your base currency, and sell it again. You earn profit from the difference between the purchasing value and the selling value. You purchase currencies from the foreign exchange market, where currency trading takes place, and make the most out of the fluctuations in money values from all over the world.

 

In real estate investment, you basically purchase a real estate property and earn money off it. You can purchase one for a lower cost (be it a house from a courthouse auction or one that needs some repairs or renovation), fix or improve it, and sell it for an even higher price. You can also get a multi-unit dwelling or commercial space and rent the units out, letting the rent pay for your mortgage and other expenses.

 

Pros and Cons

 

Foreign Exchange

 

Pros

 

·         Capital Requirement - You don’t need a huge sum to start investing in foreign exchange. You can start with a small capital and simply let it grow.

·         Convenience - Investment in forex can be done at home or anywhere, as long as there is Internet connection. You can also monitor changes in the forex market online. There are also several online brokers, who accept and offer payment transactions via online services such as Paypal. Thus, you can enjoy the convenience of being able to trade anywhere, 24 hours a day and 5 days a week.

·         Liquidity - The forex market has high liquidity, partly because of the large number of players. It is easy to buy and sell currencies, and you usually get your transactions completed almost right away.

·         Profitability - Whether the market trend is bullish (upward) or bearish (downward), you can still earn profit as long as you know when to buy and sell.

·         Market Control - The forex market is huge, so it is almost impossible for one player to manipulate the market or to take too much control over it. Even large entities such as central banks cannot influence the market for a significantly long time.

 

Cons

 

·         Risk of Loss - Of course, there is a possibility to lose all of your money, especially if your leverage is too high. Without proper knowledge and insight when it comes to market trends and other investment factors, novice traders have a high risk of failing due to undercapitalization (having to low initial capital) or misuse of leverage.

·         Limited Regulation - Because the market is too big and not centralized, it is less controlled or regulated than other markets. This creates a bigger risk of inappropriate pricing and allows little information on market statistics and investing factors such as trading volume.

·         Risk of Fraud - Also because of loose regulation and the market's relative openness, it easier for bogus brokers to enter the scene. It is best to do some good research before entrusting your money to an online broker.

·         Security Risks - Forex brokers are usually not protected, so should they go bankrupt, you'd most likely be in trouble. There is also the risk of failing to manage open trades would there be any outage in your broker's system.

 

Real Estate Investment

 

Pros

 

·         Tangible Asset - You purchase it, and you know it's there. You can see it, feel it, and you know that you can't just lose it in a flash.

·         Lasting Value - As it is one of the most basic needs, real estate will always have value whatever the state of the economy is.

·         Relative Value Control - Unlike in other forms of investment, you, to some extent, have a hand at increasing the worth of your investment. You can renovate and improve your property, divide it into multiple units that can be rented out separately, or convert it for a higher value purpose (ex. residential to commercial).

·         Flexibility - Depending on how you turn it into profit (sales or rent), real estate can be a long term investment that can generate stable income for you as long as you manage it well.

 

Cons

 

·         Liquidity - Real estate investing has little to no liquidity. Buying and selling real estate properties can't be done as quickly and easily as you would in stock and forex markets.

·         Information Requirements - In this form of investment, there are several things to learn and master, and just as many things to keep abreast of. Insurance, laws, construction, mortgages, appreciation and income potential, titles, negotiations and market familiarity are just some of them.

·         Tenant Risks - Without insurance, you could be an easy prey to suspicious tenants or buyers who'd sue or charge you for accidents that are actually their own fault.

·         Ongoing Costs – Maintenance, repair, taxes and other costs continue as long as you have the property.

 

Forex vs. Real Estate Investment

 

Considering these and many other pros and cons involved in these two investment types, you can decide on where to put your eggs in depending on your financial plans, goals or objectives, preferences, financial attitude, resources, field of expertise, and other factors to consider before deciding where to invest. Just remember to know every nook and cranny of that type of investment so as to not be a victim of fraud or any other investment risks.

By Aj Aviado of SaleHoo.Com