You might have noticed the growing popularity of Bitcoin. Due to its decentralized nature and anonymity, people all around the world have started using it. Some people even argue that Bitcoin trading offers better chances of making money than forex does. Is it true? In a second, you’ll learn more about the differences between foreign exchange trading and Bitcoin trading. Let’s go!
What is Bitcoin?
Bitcoin is a decentralized cryptocurrency. It isn’t the first one, but it’s the most popular one, and, compared to other cryptocurrencies, it is relatively stable. Relatively being here a key world, as it cannot compare to fiat currencies. Only in countries with hyperinflation running amok is the national currency less stable than Bitcoin. Still, despite its volatility, many people still use it. Why? There are several reasons:
- Privacy. Any transactions done with the use of Bitcoins are anonymous. It means that in the countries where certain services or products are banned, bitcoins can be used to circumvent the restrictions. There is no central bank to oversee the transactions. Similarly, any government cannot access the history of transactions between the users. It is especially important in countries where buying certain products could land you in jail.
- Negative attitudes toward banks. After the financial crisis of 2007-08, many people have lost their trust in financial institutions. Sure, you could argue that the popularity of the bankers was never sky-high, but the crisis convinced many people that they could not rely on the financial system that is corrupt.
- On top of that, Bitcoin trading isn’t as costly. You can lose all your money if you have bad luck, sure, but the fact that there are no intermediaries means that you don’t need to pay extra fees. When it comes to foreign exchange, you would probably need to pay the brokers and the aggregators. If you are a big player, then most probably you wouldn’t even notice those costs, but if you want to invest only a limited amount of money, then it could dissuade you from doing so. If you want to learn more about foreign exchange brokers, check Tastyworks Review.
Unfortunately, there are also serious problems with Bitcoin as well.
- Security. Though Bitcoins are one of the safest cryptocurrencies, the attacks of hackers are still pretty common. A 2018 study has examined 80 Bitcoin exchanges between 2010 and 2015. Almost one-third of them experienced security breaches. Additionally, some of them were operated by fraudsters, who then stole their clients’ Bitcoins.
- Volatility. It is not unusual for the Bitcoin exchange to experience even 10% swings in one day, which means that often it is a game of luck. Sure, having some experience would undoubtedly help, but predicting future trends is close to impossible. It can be attributed to the size of the market. When it comes to the Bitcoin market, the daily transactions are usually worth several billion dollars. With the foreign exchange, this sum is estimated at $5 trillion per day.
What is Foreign Exchange?
Foreign exchange is a global market where one currency is exchanged for another. Although many people say that trading commodities are a much safer option than the foreign exchange, it isn’t as risky as trading Bitcoins. Why? The foreign exchange market is influenced by the decisions and regulations of governments and financial institutions. It means that if someone follows the current events closely, it could sometimes bring astounding results.
On a day called Black Wednesday, in 1992, George Soros used his knowledge to bet heavily against the British Pound, and in one day, made a billion dollars. This event shouldn’t be treated as something that commonly occurs in the foreign exchange market. Still, if you have extensive knowledge about the way the markets work, you could at least have a certain advantage.
Unfortunately, the fact that financial institutions are also involved in the process means that the big players on the market don’t do everything manually. It is usually the case that banks don’t have people who choose where to place bets – they have algorithms who do that for them. It means that the adjustments are made in a matter of seconds after the news about some significant events breaks out.
It is impossible to tell whether forex trading or Bitcoin trading is better. The second option is certainly riskier, but at the same time, the high volatility of the market means that you could make a lot of money as well. Still, if you would prefer to gain or lose money as a result of real-world events that you could to some extent predict, then the foreign exchange is a better option. Whatever you choose, remember that even if you think that you know enough about markets, luck is a huge factor. That’s why you should start with low sums and only then start slowly increasing the amounts that you invest.