By David Webb, business consultant, Sydney, and contributor to BizzmarkBlog.
Since 2008, people have kept a close eye on all cryptocurrencies, bitcoin in particular. Being the flagship of all cryptocurrencies, bitcoin has come a long way since those early days, yet it still hasn’t established itself as other trading methods have. It’s still extremely unstable, as well as unpredictable, which makes bitcoin trading both exciting and risky. Due to its rise in popularity, people have been comparing it to more traditional trading methods, such as forex trading, recently. However, although both of them deal with trading currencies of sorts, they’re generally not the same, and here’s why:
Bitcoin trading works on the same principles as any other commodity exchange on the planet. The exchange is done on specialised bitcoin platforms where buyers and sellers can interact with one another to conduct trade. Next, traders set buying limits upon initiating their trade in order to get the best possible deals, at the lowest prices possible, and won’t be “filled” until a seller matches their asking price.
Moreover, bitcoin is purely a digital currency with no physical form whatsoever; it’s strictly peer-to-peer, even though its name might suggest otherwise. Consequently, there’s no middleman involved, in the form of banks, apart from the buyer and the seller. Working behind the scenes to make bitcoin operational is the so-called blockchain technology. Every transaction is placed on a public ledger, in the form of interlinked data blocks, where everyone with access can view the history of specific purchases. Also, data cannot be erased without removing all of the previous blocks in the chain, effectively preventing manipulation in the form of forgeries.
The pros and cons of bitcoin trading
First of all, bitcoin trading can be conducted 24/7, whereas forex is limited to only five days a week and closes during the weekend. This allows traders to buy and sell bitcoin at their own leisure.
Another interesting thing that makes bitcoin a global trading commodity is its decentralisation. Bitcoin isn’t tied to any specific country or bank, thus making it completely autonomous. The price is, therefore, regulated entirely by the people in the traditional form of supply and demand. This, however, has its downsides. Namely, bitcoin is too volatile as a currency because of its rapidly changing prices, fluctuating throughout a single day by a few hundred dollars at times, whereas forex is a lot more stable seeing as how it fluctuates only by a few cents at most.
Of course, this unpredictability could also be used to grab some easy money if you get lucky enough to buy it when the prices are low and sell when they’re extremely high. For example, five years ago, one bitcoin was worth around one hundred dollars, today it’s worth more about fifteen thousand, but then again, who’s willing to sit on a single currency for so long?
Forex trading is not as complex. In fact, if you ever went to a foreign country, for example, from the United States to Germany, you probably had to engage in some forex trading yourself.
Forex is short for foreign exchange, and is famous for being the most liquid market on the planet with a daily trading value of almost five trillion dollars, compared to the stock exchange’s “meagre” two billion in value.
Its basic principles work the same way as bitcoin trading, only now you’re comparing two currencies instead of the one. By predicting where the currency’s value is heading, you can either buy it or sell it at a later date to generate profit. These predictions are based on geopolitical stability, inflation, previous trends and so on.
Luckily, there are easily accessible social trader platforms, which allows you to track currency values in real time, as well as perform smart auto-trades with other dealers.
In addition to providing excellent assistance to newer faces in the market, they make your brokering life simpler, yet more profitable at the same time.
The pros and cons of forex trading
Forex trading is a lot easier to get into than bitcoin trading.
The rule of thumb is to start out small, say exchanging around $50 per day, until you learn the ropes of the trade and start making a profit. This isn’t a distinct possibility with bitcoin as it requires a lot more investment from your part just to acquire a single bitcoin.
Furthermore, you’d be sitting on those bitcoins for quite a while before you can sell them and even then, it’s a high-risk high-reward investment, whereas with forex, you can conduct trade on a daily basis, depending on the stability of the market.
Volatility is not an issue with forex as it is with bitcoin. However, physical currencies are printed, sometimes in excess, causing inflation. This then devalues the currencies to some degree, whereas bitcoin has a limitation of just twenty-one million coins existing at one time in the whole world. Meaning, its price will most likely be going up, exponentially, in the future.
To sum up, forex is currently the safer option as it’s been an established method of trading long before bitcoin was ever invented. Also, bitcoin’s volatility is like a double-edged sword – there’s no saying whether the prices will rise or fall considerably in a very short time-frame.
Nevertheless, both are still valid options, but at the end of the day, he who dares wins.