Investing is a lot like playing poker. You’re constantly making calculated decisions on whether or not you should invest more money into something or simply call it a day. Knowing when to fold and when to take the risk can be the difference between having a good ROI and ending up broke. Now expanding on that analogy, Forex trading would be a warm-up game for investors in comparison to cryptocurrency trading. It’s like having two poker tables next to each other, one with small $1/$2 blinds, and the other with much larger $100/$250 blinds. For those of you who don’t play poker, blinds are the minimum fees players need to invest to stay in the game prior to seeing the hand that they’re being dealt, hence the name ‘blind’. However, this isn’t necessarily a bad thing but it does make investing notably different in both cases. Just keep on reading, and you’ll see exactly what we’re trying to say.
The rise of cryptocurrencies
The first cryptocurrency, bitcoin, was born in a time of great economic instability, when people were increasingly losing faith in banks and other financial institutions. The first bitcoin block ever mined, the so-called genesis block, was mined back in January 2009, while at the same time banks were closing up shop due to the escalating mortgage crisis. Since then, investors were wary of placing all of their bets on the stock market and instead chose to diversify their portfolios by committing to alternative investments a lot more than ever before. This is where cryptocurrencies come into play. Because of this newfound distrust in banks, cryptocurrencies have been an absolute Godsend for investors due to them being strictly peer-to-peer, without a centralized system to hold them back. What’s more, inflation doesn’t affect cryptocurrencies as they’re more of a digital asset than a real currency (so to speak), making them even more tempting for investors.
The foreign exchange market
Before the rise of bitcoin, the foreign exchange market was the prime place to be if you were starting out as an investor. This is mostly due to the fact that it was decentralized and over-the-counter, much like cryptocurrencies later on, making it extremely accessible to traders around the globe. In fact, nowadays, all you need to start Forex trading out on your own is a reputable online trading platform to conduct your trade on, and monitor the real-time changes in prices. What’s more, unlike the stock exchange, with Forex, you won't find yourself in a situation in which a middleman always gets the bigger piece of the pie as you’re mostly on your own. Likewise, the success of this allure is largely reflected in the incredible liquidity of Forex which amounts to around $5billion, which is the amount being traded each day.
What’s it like to invest in each of these?
Well, first of all, time plays a huge role when comparing these two investments. Forex trading is somewhat of a short-term investment as you usually don’t wait for more than a few days before making an exchange. It’s pretty fast paced when compared to cryptocurrencies, as you want to trade every chance you get because of the small profit margins. The more you trade, the more profit you’ll make, which means that you have to be an active and experienced Forex trader to know exactly when to place your ‘bets’ and when to fold. With cryptocurrencies, it’s a completely different story. They are highly volatile, meaning their prices can skyrocket and plummet quite significantly in a single day. Applying the same tactics here as with Forex trading would be too risky because a lot of money is at stake, especially if we’re talking about bitcoin. This is because, investment-wise, cryptocurrencies shouldn’t be regarded as currencies at all, but as precious commodities of sorts. Therefore, when you invest in cryptocurrencies, you’re actually making long-term investments but the results won’t be immediate – you’ll have to wait a few months or even a year, until they start bearing any fruit. As a result, cryptocurrencies aren’t for everyone, as they require an infinite amount of patience and self-control to prevent you from making a panic buy when the time is not optimal for you to sell. Furthermore, with over 1300 cryptocurrencies today, predicting which one of them is the goose that will lay you golden eggs and which of them are mere duds is almost an impossible task. On the other hand, Forex trading is much more concrete as you almost always deal with the same four major pairs and have only a few cross-currencies here and there.
In conclusion, Forex is a more stable investment out of the two, with cryptocurrencies being more of a portfolio diversifier than anything else. Both are valid options, with Forex being a slight favorite for the common day-to-day trader that needs to actively earn a living, whereas cryptocurrencies are more suited for people who wish to save money in the form of cryptocurrencies, like they would with gold, instead of just placing their money in the hands of bankers.
Also read: Comparative Analysis of Cryptocurrency Market vs. Traditional Stock Market
Disclaimer: It is a guest post and should NOT be viewed as an investment advice by EtherWorld. Readers are suggested to do their research before investing into any project.
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