Cryptocurrency vs Forex Trading: What's Best for a Retail Trader and Investor?

There’s the current debate about the better option is for anyone interested in some sort of professional trading. There are schools of thought that say that the forex market is more secure, regulated and transparent, so it should be the better option.

This is not surprising seeing as people naturally prefer to work with the known and familiar than the unknown and unfamiliar. This argument has become even keener since the advent of worldwide cryptocurrency trading, thanks to the plethora of trading tools that are available to the regular individual nowadays.

It doesn’t matter if you want to trade commodities, bonds, stocks… whatever. The tools are readily available and retail traders can decide to self-teach. This is what makes the modern world so fascinating. There’s no dearth of information. All that’s left is the willingness to learn.

While this is all fine and dandy, there’s the often less spoken issue of costly mistakes and lessons. In fact, it is estimated that about 90 percent of all retail traders lose their entire capital within the first 180 days of trading.

Unfortunately, many of them often indulge in something loss chasing. This is the process where retail traders fund their accounts over and over with the hopes of recouping their lost funds –this also happens among gamblers a lot.

As with gamblers, this never really happens as they keep losing those funds –primarily because they are trading with their emotions instead of their heads. This is why the best way to trade is to take a methodical approach to trading instead of an emotional one.

As great as that sounds, this typically takes years and years of trading experience, discipline and knowledge to always resist the urge to chase losses. So, for many new retail traders, this can be an uphill battle; one that gets them to quit before they master the art of trading.

This is why instead of going after the more established, secure and well regulated traditional exchange markets, you might want to consider cryptocurrency trading. This isn’t quite as complicated and the learning curves aren’t really that steep.

Of course, some of the principles used in forex, stock or commodities trading can be applied, but the rules aren’t as restrictive or inhibiting. Cryptocurrency trading hasn’t become as convoluted as its more established and traditional cousins.

Although we suspect that will happen in the near future, what with many institutional investors trying to get into the market. But before we point out the perks of crypto trading for retail traders, let’s explore why forex trading may not be the best idea for you right now.

Quick Overview About Forex Trading

While forex trading is the most popular of all the retail trading opportunities, the reality is that it’s not as easy or as simple as it’s made out to be. Yes, you can trade. But profits? Those take a lot more time and requires consistent practice, trading and “seed money” that you may never recoup.

It’s true that most forex trading platforms will provide you with demo accounts to practice with. But, that’s nothing compared to real world situations as they are mostly simulations, with no consideration for some of the curveballs that real world situations can throw at you.

For example, forex trading can be so volatile that a single news item can turn a profitable run into a loss, within seconds. Yet, every year, a lot of people fall for the gimmicks of brokers who entice them and encourage them to come spend money with their brokerage, even when the odds aren’t really in their favor.

The Use Of Leverage In Forex Trading

When used correctly, leverage can do wonders for your trades, making you profits in multiples of your capital. Even better, leverage is why you can open a trading account with just $1,000 and still participate in trades worth $50k. But, that same leverage will wipe out your capital in a heartbeat if the market tides turn against you.

Leverages provide an artificial inflation of your trading capital, by as high as 1000X. So, if a retail trader were to fund with just $1000 and choose the 1000X leverage, that’ll translate to $1,000,000 when executing the trade. So, when your profits or loss come in, they come in as though you were actually trading with that amount. You can see how easy it is to have your account wiped out, right?

But that’s not even the real issue. The major reason new retail traders fail and lose a lot of money is because they misuse their deposit. More importantly, while the forex trading brokers like to push the leverages on new traders, the truth is that newbies really shouldn’t be using it.

The Reality Of Leverages

The best time to trade currencies is when the market is stable. But, because profit margins aren’t as huge, it’s not attractive to many. A lot of money can be made during periods of high volatility through leverage. But that requires incredible skill and knowledge; two things a newbie trader doesn’t have. As a result, they expose themselves to key risks like:

  • Operational risk
  • Model risk
  • Market risk

These risks further impede their abilities to successfully trade and be profitable.

Incremental Costs

Traders often have to pay commission fees, bid-ask spread, rollover fees, and others. Combined together, all these fees –all of which will be deducted from your capital- can soon pile up, resulting in extra costs and unforeseen expenses.

All these issues create a condition that sets up individuals for loss and failure in the forex trading market. This is probably why many new traders often give up before mastering the art of forex trading.

Cryptocurrency Trading And Its Many Benefits

While cryptocurrency trading is somewhat complex, it holds no candle to the complexities of forex trading. Even better, many of the fees which are essentially ways the brokers make money off you aren’t yet implemented in the average crypto exchange platform.

This makes crypto trading a better and easier alternative to forex trading. Of course market volatility is an issue, but it doesn’t take a rocket scientist to figure this out and take positions that will help them make money.

Also, commissions are considerably lower, there’s more transparency, and there are no middlemen who are just there to make a lot of money from you. Transactions are also pretty direct, thus making it easy for a retail trader to just get in, trade cryptos and make their money.

While most trading platforms don’t offer features like margin trading or margin calls, Bitmex has recently started doing this, as well as the provision of leverages. However, this is just one cryptocurrency exchange that’s doing this –and it’s not even as popular as the others.

The single challenge that cryptocurrency trading has is the perception that it can suddenly disappear, ceasing to exist. This risk of default is a real issue and one that’s slowing down the growth of the market.

However, if you are smart, you can simply choose to trade established cryptocurrencies, crypto projects with real world applications and a transparent company. These are the best crypto tokens to trade right now.

If you’re at a loss for where to start, just go take a look at the top 20 cryptocurrencies on Coinmarketcap and go from there. If you’re confused about the key difference between forex and crypto trading, crypto trading is like trading your regular stocks. Only this time, you’re betting on projects that haven’t become household names –something similar to what happened during the dotcom era.

The technologies offered by blockchain and cryptocurrency are new and most likely, revolutionary. Investing and trading cryptos right now gives you the edge needed to get in on the ground floor of something truly awesome and groundbreaking.

Whatever you decide, just make sure that your decision is from a place of confidence. This is why we created this article to show you how they differ. We’re hoping you’ll make the smart choice and get on board the crypto train on to a brighter, better and more financially rewarding present and future.

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