One of the big decisions as a trader is what market to get involved with. There are a few with many different assets in them from stocks and indices to commodities. Then there are the currency markets of Forex. Finally, the newest addition to the list is the CFD cryptocurrency market. Let’s say you are interested in trading with currency – should you go with Forex or cryptocurrency?
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Market Background
Exchanging currencies is something that has been done for a long time and the idea of trading, as we know it today, started back in the late 19th century when gold became the standard. Determining how much a currency was worth in gold was a standard way of valuing it. As the digital age evolved, this exchange became electronic and the ‘new over the counter’ Forex market was born.
In 2009, the market changed again with the creation of a new form of digital money called Bitcoin. Invented by an anonymous programmer using the alias Satoshi Nakamoto, it started the creation of numerous new types of currency that are now known as cryptocurrencies.
Market Size
One of the first things to understand about the different markets is their size and how this impacts them. Generally, the bigger the market, the greater the liquidity, depth, and stability. When you compare Forex and cryptocurrencies, this is definitely the case.
Forex is the biggest market in the world with people involved in trades on a daily basis. This leads to liquidity and relative pricing stability. Rapidly changing technology has also promoted growth in the market and made it easier to get involved with trades.
Cryptocurrencies such as Bitcoin are still on a much smaller scale. They usually have a predefined limited supply (this is 21 million for Bitcoin, for example) as the market is limited as to how big it can get. The market size is much smaller and therefore much more volatile.
Pros And Cons Of Forex
Pros and cons of any market depend on what you want to do with it but here are some of the positive ones for the Forex market:
- Size – the size of the Forex market means there is a depth to it that has a wide range of currency pairings
- Diversity – there are major, minor and exotic pairs to trade with
- Stability – forex is generally relatively stable with large fluctuations being infrequent
- Leverage – extensive leverage is available including 50:1, 100:1 and even 200:1
There are some drawbacks to Forex trading. The lack of price volatility means that there isn’t a lot of opportunities to make profits from changes in the rates. And, the involvement of the investment banks, high-frequency traders, and other big players make it more difficult to make a profit. There can also be costs involved, depending on the type of trades.
Pros And Cons Of Cryptocurrency
In some respects, the cryptocurrency market is the opposite to the Forex market and the factors that work against one work for the other:
- Volatility – because the market is very volatile, there’s an opportunity for big profits (and big losses)
- Easy to enter/exit – you just need a good quality platform such as Jones Mutual to start making the trades you want
- Limited costs – there are few extra costs for making cryptocurrency trades, especially with CFD trading
- Fewer causes of fluctuations – while the market is volatile, it isn’t as affected by standard causes such as geopolitical issues or domestic economic performance
The biggest problems around cryptocurrency are due to its nature as a digital currency. For example, hackers have cost people millions and there have been some glitches in the Blockchain, the technology behind the currencies. This can make some traders a little cautious in becoming involved with them.
If you are interested in even more business-related articles and information from us here at Bit Rebels then we have a lot to choose from.
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