In the years past, those willing to invest would either buy equity in a local company, go into real estate or find a stock market broker for investing in corporations. However, recently we are witnessing the rise of many other “standard” investing options.
Since the advent of Bitcoin and other cryptocurrencies in 2017, more and more individuals are going into crypto-investing. On the other hand, with so many secure online forex brokers, investments for foreign exchanges were never simpler. Ultimately, both of these investment options come with their own set of strengths and flaws.
Advantages and disadvantages of Bitcoin investments
In terms of market liquidity and depth, BTC can’t come near forex. Although, BTC does include a few benefits for active traders. From a perspective of volatility, the limited BTC supply develops ideal circumstances for substantial daily trading ranges and spikes of volatility. This cryptocurrency is also insulated from conventional currency stimuli such as geopolitical issues or domestic economic performance. However, the BTC has quite a few drawbacks. It is vulnerable to hacking and glitches because of its technical nature and possible disruptions in the “blockchain” software. Moreover, there is limited availability of leverage, since BTC is actively traded in several different manners, each with different degree of available leverage. BTC contract-for-difference products usually offer low margin requirements and extensive account leverage.
Advantages and disadvantages of forex investments
Forex has various advantages that BTC doesn’t offer. For starters, its size provides a considerable depth of market facing a broad range of popular currency pairings, ensuring liquidity in the process. Besides this, forex offer diversity with major, minor, and exotic pairs available for trade, and relative stability due to the size of the market. Ultimately, what makes forex more favorable is the security of financial regulations, with brokers such as Ever Forex offering even added protection in the form of Meta Trader 4 and 5 platforms. However, forex does suffer from some drawbacks – it lacks pricing volatility giving you a hard time to raise regular profit from exchange rate discrepancies and has institutional involvement from investment banks, proprietary companies, and high-frequency traders.
Day-trading and position trading
The biggest difference between BTC and forex is the investment strategy you implement. Since the forex market is highly volatile, a lot of individuals decide to go for day-trading instead of position trading. Most day-trading losses end at 1% of your total account value, while the most successful trades end at around 6%. The profits depend on a higher frequency of trades.
Although dynamic trading of cryptocurrencies exists, the consensus is that to make profits, you need to:
- Find a growing crypto-coin
- Wait for the value to skyrocket
As per example, it is clear that this is much closer to position trading. Of course, there are those who day-trade in cryptocurrencies and position trade on the forex platform.
How much skill and luck do you need?
Bitcoin has an ultimately finite supply of 21 million units, with protocols which control new issuance meaning there is little space for manipulation. Hence, trading in BTC is purely concentrated on demand, which in turn is based on adoption and the quality of the project. Bigger adoption of BTC basically increases the size of the network, which means more traders, higher utility and larger price. On the other hand, fiat currencies have a potentially unlimited supply and each currency’s supply is determined by the monetary policy of the particular issuing institution. Typically, each nation’s central bank regulates the supply of that currency available through various policy processes linked to the repurchase or interest rate. This is, essentially, an opportunity cost of holding money in that economy. If you’re looking to profit, you will need to find and purchase currencies that show indications of macroeconomic improvements through the selling of currencies that show the opposite.
In the end, you must always keep in mind that the capital you want to invest, although with a potential of making a profit on its own, is not 100% safe. Therefore, it is inadvisable to dip into your emergency savings or your superannuation fund. You should only trade with the capital you are willing to lose.