Advantages and Disadvantages of Trading Cryptocurrencies and Forex
Forex and cryptocurrency trading, like most trading activities, can have positives and negatives for traders. People wanting to enter these markets should weigh the pros and cons to determine if it is an attractive and appropriate market for them. So, let’s get straight into the nitty-gritty and start with forex trading.
Apart from national central banks, major financial institutions, large fund managers, large corporations and high net worth individuals were virtually the only participants in the huge foreign exchange market in the past. However, with the advent of forex trading via the internet, almost anyone can open a forex trading account and start trading currencies online. Let’s take a look at the pros and cons so you can decide if this market is right for you.
Reduced start-up costs – Due to the tight spreads between price points, you can easily start trading the forex market with a small initial capital. In comparison, trading in other markets such as stocks, futures, and options would be next to impossible if you don’t have a large amount of capital.
Large market size – The market is huge in terms of size and scope. Around the clock, traders from all over the world participate in the market for selling currency pairs. This generates a large amount of revenue and offers a large profit margin.
Flexibility – Forex markets offer traders great flexibility. Indeed, there are no restrictions on the amount of funds used for transactions. Also, there is virtually no market regulation. This, combined with the fact that the market is open 24 hours a day, seven days a week, creates a very flexible scenario for traders.
Volatility – High volatility in the forex market can be one of the downsides of forex trading. A highly volatile forex market means that currency prices can vary dramatically, which can be detrimental to unprepared traders.
Whether you’re a hard cash traditionalist or an investment enthusiast, you’ve almost certainly heard of cryptocurrencies today. Over the past few years, cryptocurrencies have grown in popularity. However, it is still considered a new type of currency, and there is a lot of misinformation about it. Understanding the pros and cons of cryptocurrencies can help you decide if this is a good investment opportunity for you.
High Rewards – There are over 10,000 cryptocurrencies on the market today, each with unique characteristics. However, all cryptocurrencies share a few things, like their propensity for sudden price increases. Prices are primarily determined by the supply of coins from miners and demand from buyers. And this dynamic of supply and demand can translate into substantial profits.
Simplicity – A cryptocurrency transaction is usually quick and easy. Bitcoin, for example, can be transferred from one digital wallet to another with just a smartphone or computer.
Decentralized – A significant advantage of cryptocurrencies is that they are mostly decentralized. Decentralization helps to keep the currency monopoly free and restricted, as no single organization can determine the flow and therefore the value of the coin, which in turn keeps it stable and secure, unlike fiat currencies, which the government controls.
Regulatory Restrictions – While cryptocurrencies are generally legal in many developed countries, central governments do not officially regulate the currency. Therefore, investing in a cryptocurrency will be risky until federal governments adopt and control it in the same way as fiat currencies like the US dollar.
Taxable – Although unregulated, cryptocurrencies are taxable in many countries, including the US, UK, and Japan. As any positive cryptocurrency movement can increase a trader’s income, it is automatically taxable. Additionally, if cryptocurrency is used to make purchases, it may be subject to sales taxes.
There it’s done ! The main advantages and disadvantages of trading forex and cryptocurrencies. Now all you have to do is decide what suits you best and get started!