Ultimately, it’s about picking the right battles.. Published · By tradingfanbois
This is one of the most common questions asked by newbie financial traders in the present day. 2017 was a breakthrough year for Bitcoin and cryptocurrencies in general. The sudden surge in the price of Bitcoin placed cryptocurrency on the radar of all individuals that like to invest their money in burgeoning, immature markets.
If you are wondering whether or not you should stick with fx trading across hundreds of forex pairs across majors, minors, exotics and metals, or sample the trading of leading cryptocurrencies like Bitcoin and emerging altcoins, we thought we’d outline the pros and cons of both forms of trading to help you make an informed decision on your trading future.
The pros and cons of cryptocurrency trading
Just in case you are entirely new to the concept of cryptocurrencies, these refer to a medium of digital assets that utilize complex algorithms and cryptography to generate and verify transactions involving these assets.
Pros of cryptocurrency trading
- Bitcoin is starting to build its own history – the leading cryptocurrencies like Bitcoin and Ethereum are only now starting to create their own piece of history in the financial markets. Use cases for these crypto coins are increasing by the day, so there will naturally be a surge in demand.
- Cryptos offer effective diversification and hedging opportunities – financial traders concerned about the value of forex pairs or government bonds can buy cryptocurrencies as an effective way to spread risk or hedge your existing trading portfolio.
- It’s the future of currencies – cryptocurrencies are actually being developed to solve real-world problems for citizens worldwide. It can guard against high inflation, capital controls and extortionate banking fees.
Cons of cryptocurrency trading
- Lack of historical data – given that cryptocurrencies are very new to trading markets, there is not enough historical data for traders to use as key support and resistance levels.
- Volatility – some financial traders like price volatility, but some might say that cryptocurrencies are too volatile and represent an almighty challenge when finding suitable entry and exit points.
- Uncertain market sentiment – although cryptos were on an uptrend in 2017, they have certainly been on a downtrend in 2018. It’s hard to know where they’ll head next.
The pros and cons of forex trading
Trading fiat currencies has been a lucrative proposition for investors that know the right time to enter and exit the markets. However, there are several pitfalls too which we’ll explore below.
Pros of forex trading
- 24-hour accessibility – five days a week, forex traders can enjoy 24-hour access to all forex pairs with real-time pricing, charts and tools available for deployment.
- Market leverage – depending on the broker, some forex traders can use leverage to maximize trading profits by up to 100 times their actual trading bank.
- Unrivaled liquidity – the forex market is undoubtedly the most liquid market in financial trading; it is the easiest market to open and close trades with speed.
Cons of forex trading
- Not ideal for smaller trading banks – in truth, forex trading is largely made up of sizable hedge funds and trading groups. Given the small percentage moves on forex pairs, you need a sizable trading bank to generate respectable returns.
- Unpredictable volatility – forex markets can be just as volatile as cryptocurrencies; there are moments of extreme volatility at times, particularly surrounding political events.
In truth, there is a place for crypto and forex trading in all our trading arsenals. Ultimately, it’s about picking the right battles and knowing the right time to use them when the risk factors are on your side.