The pros and cons of trading cryptocurrencies
Bitcoin (BTC) was the world’s first cryptocurrency, launched way back in 2008. It was the brainchild of a developer, or a group of developers (nobody really knows), called Satoshi Nakamoto. Bitcoin was designed to be used as the new currency for a peer-to-peer digital payment system of the same name.
Cryptocurrencies are fully virtual currencies created from a code that exists only on a dedicated computer network. Like all virtual currencies, Bitcoin isn’t legal tender in most countries and is not controlled by any government or central bank. For that reason, cryptos are often described as decentralized payment systems.
According to CoinMarketCap, there are currently more than 2,170 cryptocurrencies and tokens available, with Bitcoin being number one in terms of market capitalization. This virtual currency also dominates the cryptocurrency market, accounting for 52% of volume. The next most important cryptocurrencies are Ether, Ripple, Bitcoin Cash and Litecoin.
Cryptocurrencies other than Bitcoin are known altcoins – short for alternative coins. Like Bitcoin, these virtual currencies rely on blockchain technology, but they often have other purposes and unique features. It all depends on what their creators wanted to focus on, such as anonymity (Monero), the internet of things (IOTA), dApp (Ethereum), global payments for financial institutions (Ripple) and solar energy (Solarcoin).
Most of the major cryptocurrencies are available to online traders who wish to take advantage of significant – and often sudden – price movements. The overall cryptocurrency market has a well-deserved reputation for being very risky, volatile, and illiquid, which can be major issues for unprepared traders.
An illiquid market is one in which it is difficult for participants to sell assets when they want to realize their gains or cut their losses. That’s why this type of trading is not appropriate for all investors. The most liquid markets are those offering the widest range of trading opportunities at the lowest costs.
The Foreign Exchange or FOREX market can be a great alternative to crypto-trading, as it is one of the largest and most liquid in the world. Central banks, governments, investment companies, insurers, multinational companies and ordinary travelers all contribute to the daily activity of the Forex market.
Trading currencies on the Forex market attracts investors who understand the importance of liquidity, as well as volatility, to achieve peak trading performance. In addition, a highly liquid market often offers the best trading conditions, such as super-fast executions and tighter spreads, as well as lower slippages and gap risks.
Investing in the Forex or cryptocurrency market often involves large short-term price movements, which can present significant risk if you do not apply strict money and risk management rules.