Trading is the bloodline of existence. Although the purview of world and prism of authority are inclined more towards serving the humanity through social experimentation, what I personally believe is that no other thing has served humanity more than performing a trade.
It demands efforts, brains, analyzing skills, and more importantly, hunger to breathe in this competitive world. It is the most virtuous thing a person can do.
Since trading has become a requisite to survive, people have been treating currencies as commodities and they have been trading these currencies as well. We all know how the history of the medium of exchanges has evolved.
From shillings to fiat currencies, from fiat currencies to cryptocurrencies, people have accepted different modes of exchange. One thing which has remained constant with the ever-changing medium is the trading of these modes of exchanges.
Forex trading has been into the picture for decades now. But the sudden growth of blockchain technology has raised several eyebrows in the cryptocurrency market.
In order to trade cryptocurrencies, it is necessary to treat digital currencies as commodities. And the good part is, people have already started the crypto-trading, much like forex trading.
With cryptocurrencies hitting the trade, investors are intrigued about its future. They are laying all the possible permutations and combinations to figure out the best of the two, i.e., Cryptocurrency trading or Forex trading? But before we move further in discussing either of the tradings, let’s check why people accept something as a medium of exchange.
The medium of exchange is nothing but what the buyers and the sellers accept between them as an exchange.
For example, I may offer 100 wheat bags for a computer. It really depends on the entities of the trade and what they accept as an offer. No governing body or authority could enforce and dictate you to make use of a particular medium of exchange. Since fiat currencies are regulated by the government, they can be printed as much as the central body wants. What does it mean? The trade is somehow regulated by the government, if not directly, then cunningly.
The idea of blockchain cryptocurrencies is to make a decentralized system which is not regulated by the centralized system but by the people involved in its operation. It works on the consensus model where fraudulent is almost impossible.
Another important yet ignored advantage of cryptocurrencies like bitcoins is that “they are free of labels like culture or nationalism”. In the thirst for strengthening the “national currency”, the government puts a lot of efforts in hampering the trade. These regulations are prominent factors which lead to trade barriers. Cryptocurrencies are operated on the internet, anonymously. The rule of cryptocurrencies is simple. Trade them without any worldly barriers. Trade them at the rates which they deserve as per their worth. The rate of currencies is decided by “supply and chain” and not by some regulatory bodies.
So, the point is.. If you, as a trader accept cryptocurrency as a medium of exchange, which I am sure you would (because of its advantages over the centralized system), its success is inevitable in the near future. So, why not invest in something like the concept of cryptocurrencies?
Let’s just check how forex and cryptocurrencies behave under different tests:
You gotta respect the thing that both forex and cryptocurrencies are volatile. We do have situations where the market is too volatile. If you compare cryptocurrencies with the conventional trading instruments, is it fair to not trade cryptocurrencies due to volatility? In my opinion, I don’t think so. You can reduce the risk of volatility by reducing your position size.
Optimal position size reduces the risk of losses. Working on position size (no matter if your account is small or large) might make you a smart investor. It says that don’t risk more than 1% of your trading capital. If you have $100, don’t risk more than $1. If you have $5000, don’t go beyond risking $50. If you keep the risk below 1%, even if you lose 10 trades continuously, you will still have almost the same capital. If you had spent 10 or 20% of your account, 10 continuous trade loss would sweep your account.
Risk instrument can be understood by simple examples for both the cases. Consider that you are trading dollars, it is unlikely (it could do but chances are rare) that it would crash down 25% all of a sudden. But in the case of cryptocurrencies, the news is the driving force which decides their rate. So, you really need to know that where did the risk come from. A lot of factors or risk instruments like oil supplies decide the forex rates.
But cryptocurrencies are so dependent on the news events like “government plans to regulate bitcoins” that their prices are pushed significantly. So, cryptocurrencies have news driven risks. You got to be aware that prices of the cryptocurrencies may be way more aggressive than the forex. You can plan things for forex risk but I think crypto has a lot more underlying risks.
If you are trading bitcoins or Ethereum directly on the cryptocurrencies trading, you have got to understand that you are not going to get the same manner of trade in terms of speed, quality, and in terms of knowing your position in the trade. In the case of crypto, it can take a long time to fill, it may take a high cost to complete the trade.
This is basically when you keep your funds in an exchange and you are not quite secure about it. But if you allot those funds to the authorized dealers or brokers, or someone who is credible and you have all the necessary details of the fund holder, then you will have a sense of assurance that your money is protected (unless your funds are hacked). In the case of cryptocurrencies, your counterpart risks are very high. One solution to resolve this is by carrying your cryptocurrency trade via a verified broker or authentic seller instead of directly trading the bitcoins or Ethereum. If you are down, they don’t get disappear overnight. You have little protection and backing when you deal with the brokers.
This is a big key which unfolds what you should trade, forex or cryptocurrencies. We all want to reap the maximum benefit at the least risk and we might just go for volatile products or currencies. But just because something is more volatile doesn’t mean that it is potentially more profitable. In the case of cryptocurrencies, we can predict the potentiality because most of the people in it are either gamblers or speculators who are trying to figure out the future of the cryptocurrencies. Since we know their motivations, since the investors are predictable, cryptocurrency trading becomes a little riskier than forex trading where we don’t know the motive of the investor.
Seeing cryptocurrency trading as a winner, all you need is a secure exchange platform with nice UI, excellent customer service and not-so-hard conditions. One such exchange “Encrybit” is going to be unveiled in near future.
There are quite a few related risks to cryptocurrencies when you think of trading it. But you can’t eliminate the fact that the success of cryptocurrencies is just on the horizon. Day by day, the system is getting stronger and decentralized system is further getting decentralized by the entrance of the altcoins. I can sense a future where people will accept cryptocurrencies as the necessary medium of exchanges because blockchain network is designed in such a manner that you can’t mine more than what protocol has decided for you. What does such a protocol do? No reckless printing.
Yogesh Trivedi is a Blockchain Consultant at Encrybit.io, a CryptoExchange which aims to help its users in understanding the investment benefits of Cryptocurrency.
Yogesh specializes in the area concerning Bitcoin, Blockchain and ICO.
His consulting services to users aid them to reach maximum profit targets with this profound knowledge and altruistic attitude.