What are the advantages of trading Cryptocurrency?
There are two ways to speculate on cryptocurrencies: trading and investing.
What are the advantages and disadvantages of these two methods?
Advantages of buying real cryptocurrencies:
When you go through a broker to actually buy digital currencies, you place an order to your broker who will buy you according to your request a number of crypto currencies.
For example, if you bought 1 Bitcoin at 5700 USD and you bought it at 6000 USD you will have earned 300 USD.
If for one reason or another this currency comes down to the price of 1 USD you will have lost almost all your investment, but only if you decide to sell your Bitcoin.
If you wait until the price of the currency rises, you can recover your investment and can be more.
In fact, as long as you have not sold, you have not lost!
This is the main advantage of the classic investment ie the actual purchase of virtual currency, limiting your scope, you limit the risks. (We will see that with trading your possibilities of action are more important)
Disadvantages of the real purchase of cryptocurrencies
The main disadvantages of the traditional investment are that you need to open an account, create a wallet, make money transfers through a broker, you often have to buy Bitcoin to be able to buy from Other crypto currencies, you must preserve private keys in a safe place etc. All this takes time, is not always easy and there is always a risk of being hacked or lose the private keys.
The other disadvantage being that your winnings will be limited, we will see how by trading you can earn much more.
Advantages and disadvantages of CryptoCurrency trading
As for trading, the main disadvantage is that if you trade down a certain amount, for example 10USD in cryptocurrencies, and the price of the currency increases to 20 USD you will have permanently lost all of your investment.
(On the upside, the principle is the same as for the classic investment: not sold not lost!)
Similarly, if you trade with leverage, you risk losing your entire investment.
Advantages of trading
When you trade you do not own the virtual currency.
You can not steal, hack, or lose your keys.
Your purchase goes through an intermediary who is the broker who has a bank security, you do not risk seeing your currencies fly away
You instantly buy any currency without needing a wallet or buying Bitcoin to buy other currencies.
Gains up or down
You have the opportunity to win both the purchase and the sale.
That is, you can “bet” on the upside as well as on the downside of the desired currency. For example you buy for 10 USD and you close at 11 USD. If the price of the currency arrives as expected at 11 USD you have earned 1 USD. If you decide to sell at $ 10 and close at $ 9, and the currency drops as expected to $ 9 you will also have earned $ 1. This is called a CFD “contract for difference” or “short sale”. So you have more opportunities to generate earnings.
Another advantage, you have the opportunity to play leverage.
What is a leverage effect?
Take an example: you have decided to invest $ 10 on a cryptocurrency with a leverage of ⅕, it is actually as if you had invested 50 USD. Your winnings, if there are any, will be multiplied by 5.
For this type of trading there is a security called “stop loss” that allows you to never lose more than your investment.
There are leverage up to 400 times more, which allows you to earn much faster and much more, but can also lose you very quickly! Leverage 5 times are the most common for cryptocurrencies.
Virtual currencies being extremely volatile products, the price differences are very important and thus allow quick and significant gains.
Why is the price of crypto currencies so volatile?
The cryptocurrency market in terms of exchange is much smaller than that of other stock market products.
In the traditional commodity trading market the volume of transactions is around USD 5000 billion per day !!
For Bitcoin for example it is about 100 million USD per day. Which is of course much less important.
When there is less trade, the slightest fluctuation makes the traders react and the spreads are much larger, resulting in sudden changes in the virtual currency exchange market, which can reach 30% in one day for example.
If you need to speculate on virtual currencies, we advise you to study the advantages and disadvantages of both methods before you start and especially to choose your brokers.