Bitcoin is the same as trading forex
Forex or Cryptocurrencies: What Should Traders Trade?
In this article you will get to know the advantages and disadvantages of classic forex trading and cryptocurrencies like Bitcoin. Forex and crypto traders can then decide whether it might be worth taking a look at the other side.
Everyone has been talking about them since 2017 at the latest - cryptocurrencies. Bitcoin, Ethereum, Litecoin and Ripple are mainly known to the general public.
There are now over 4,500 different crypto currencies and new ones are added almost daily.
As the name "cryptocurrency" suggests, it is also a currency.
But do these currencies currently have the same advantages and disadvantages as the currencies common today and does trading in cryptocurrencies work just as (well?) As Forex trading?
To do this, I took a closer look at the two groups “Cryptocurrencies” and “Forex”.
Does one of these groups offer additional advantages or security that make my actions more successful or easier?
Curse and blessing of cryptocurrencies
I also followed the developments of various currencies in the hype of the "crypto year" 2017. It all started for me with Bitcoin. Afterwards, Ethereum and Ripple came to the general public very quickly via the media.
As a result of the good developments, the first spin-offs took place very quickly, which should again offer various advantages. Bitcoin Cash and Bitcoin Gold were just the first.
The unhealthy and irrational extent of the whole hype was then taken to extremes with the development of Dogecoin at the latest. This cryptocurrency was once thought of as a kind of parody of the Bitcoin.
It should actually make it clear to investors that in such a hype, everything is bought more or less blindly and one does not even begin to question what one has bought in the first place. This currency, too, was suddenly worth more than 2 billion US dollars at its peak. At this point, at the latest, you should have realized that the Ratio has completely passed in this market.
I don't want to say that none of these currencies or the technology behind them have no future, but the extent of the price gains and the whole (media) hype behind them were too exaggerated and could not be justified by anything but hope.
One problem is that there is no evidence that would allow a reasonable assessment. The principle of 2017 in the crypto market was hope.
Someone will give me more money for my coins than I paid for them myself.
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In the case of stocks, the fundamentals of the respective company can help us with a valuation. We see the assets and liabilities in the balance sheet, can include the last quarterly figures and have various key figures such as the price / earnings ratio (P / E), the price / book value ratio (P / B) or the respective dividend yield.
In the case of bonds, we are able to make an assessment by looking at the creditworthiness, the respective interest coupon and the price quotation, for example.
With these key figures, we as investors can decide whether the respective bond from a country or company appears to be attractively valued or is rather overvalued.
In the forex market, too, we have clues that we can use for orientation.
For this we need, for example, the goals of the respective central bank and the economic data of this country in order to be able to assess how close a country is to the goals of the central bank.
The big problem in the crypto market quickly becomes clear here.
We have neither a balance sheet nor a credit rating and also no central bank that we can use as a guide. For most currencies, we don't even know who originally created or programmed them. From Tesla's Elon Musk to the CIA, I've heard all the names on Bitcoin, sometimes more and sometimes less credible.
As already described at the beginning, we only have the hope in the technology and that my currency, of all things, will prevail over 4,500 others in the long term.
Apart from the exaggerated development that reminded me again and again of the tulip mania of the 17th century, over this short period of time, these were the reasons why I followed this market with excitement but was never active myself.
The following example makes it clear why crypto currencies are not yet becoming a nationwide means of payment for the time being.
We already have a first problem with the calculation for companies and private individuals.
Due to the very volatile crypto market, the value of my money can change by not inconsiderable sums almost every second. This also makes the calculation more difficult for companies.
At the bitcoin high (around $ 20,000), Porsche could have sold a car priced at, say, $ 100,000 for 5 bitcoins.
After there was a sell-off in the markets, the Bitcoin suddenly found itself at its last low (about $ 6,000) not too long later.
The company would have received only $ 30,000 for these 5 bitcoins. The result would have been a good $ 70,000 depreciation.
That would have meant a depreciation of 70% in relation to the original price.
Of course, there are also first attempts by smaller companies to handle normal payment transactions with crypto currencies. There are already the first cafés and pizzerias in which I can pay for the food I have ordered there with the most common crypto currencies such as Bitcoin, Ripple, Litecoin or Ethereum.
With such rather smaller amounts, it is also easier for the company to calculate and, in the worst case, losses or depreciation are not too high.
Also because only a very small part of the clientele pays with it and the majority is more interested in possible price gains.
Bitcoin for day traders:
For day traders, volatile markets are generally a good starting position. Many are happy about rapid increases and decreases and can thus carry out many transactions in a short time, which can reduce holding and transaction costs.
However, beginners in particular are unable to adapt their personal risk management to the volatility of the underlying asset. If the Bitcoin is at 10,000 points, a different risk management is necessary for the time being than if the DAX is at 10,000 points. Simply because the volatility is fundamentally different. Traders should, for example, use the ATR indicator to determine the volatility and then derive the position size from it.
Last but not least, many trading strategies are built with the help of backtesting. Since cryptocurrencies have not been around for too long, there is generally a lack of sufficient data to distinguish between patterns and coincidences.
Before we get to the forex market and why, in my opinion, it currently offers even more advantages for trading, one thing first:
No matter which currency and which chart you look at, you will never have a development like the crypto currencies in this market. However, this is not necessary at all, since it is precisely this circumstance that gives us an advantage.
Slower price movements offer us the chance to better follow the market, to assess it and we never have to worry that the price of the currency has suddenly halved the next day. You will never experience a price loss of 70% over a few days as with Bitcoin on the normal currency market in the most common forex pairs.
Many friends and acquaintances who have nothing to do with trading have also approached me, saying that I should be really rich and that thanks to the Bitcoin development, I have now taken care of things. After that, the question always quickly came up whether it would be worthwhile for you to invest, after all, the chart only rises in one direction and that is up at a rapid pace.
Apart from the fact that it is a warning signal for me when people who cannot withstand the volatility of a DAX ETF suddenly want to invest in such things, I had good reasons to continue to focus on the forex market.
Apart from the experience gained with these basic values, the advantages are obvious.
The forex market is the most liquid market in the world. This is where companies, governments, central banks and private investors come together.
The G8 currencies are liquid at all times and, unlike the stock and bond markets, for example, can be traded around the clock during the week.
These G8 currencies include the USD, EUR, JPY, GBP, CHF, AUD, CAD, NZD.
Due to the time differences around the world, it is necessary that this market is open all the time so that trading is possible for the above-mentioned market participants at any time.
This is made possible by the fact that currency trading takes place in interbank trading and does not require processing via an exchange.
The second advantage of the Forex market is that the currencies traded there are recognized by the respective governments of the countries as an official means of payment and I can get something in return for my money such as a product or service without any problems.
I don't need to worry that countries will suddenly come up with the idea of banning the currency I hold, which would lead to significant exchange rate losses. See also the rumors about a Bitcoin ban in China and South Korea.
It doesn't matter whether it's a coffee or a car. The company and the consumer can calculate well with the money and companies can hedge against price fluctuations in the markets over the course of the year.
Also, I don't get into the situation that can currently occur on the crypto market, that I get annoyed the next day when I see that I would have got twice the goods for the coins I issued yesterday.
Another positive point for trading on the Forex market is that there are specific economic goals for an economy, the central bank and thus the respective currency.
We know, for example, that the ECB is aiming for a rate of price increase of just under 2%.
If the next inflation data from the euro area should surprise positively, then the next rate hike is one step closer and the euro is very likely to rise.
This makes it possible to compile the goals of all central banks in a list in order to compare them with the new economic data.
It is also possible to listen to the speeches of the respective central bankers. This information can provide information on how close you are to a possible next interest rate hike or how things will continue with the QE program in the euro area, for example.
All of this information will help you assess the development of the respective currency pairs and enable trading with sensible risk and money management.
Taking into account a reasonable position and leverage size, the nerves are spared, the volatility is reduced and constant profits can be achieved.
I will continue to monitor the crypto market and the developments there and I am curious how it will go with individual currencies.
I still earn my money on the "normal" Forex market. Here I can put aside my hope for a good development and concentrate on the hard facts that enable a fair evaluation / development.
How do you see the pros and cons between forex and crypto trading?
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