Trading stocks and FOREX vs. trading cryptocurrencies
Many people are wondering if trading cryptocurrencies can match trading stocks or FOREX in terms of profit potential. Many factors affect traders’ choice on which market to trade. Whether it is the liquidity of the market, volatility, or simply the ease of access to the profit-making trade, everything, and anything can influence that decision. We can certainly point out a few factors that differentiate stocks or FOREX to cryptocurrency trading.
Ease of access
When it comes to trading, the ability to start the process fast and without any issues should be a priority. When it comes to stocks and FOREX trading, trading software is expensive and requires a lot of paperwork and time. It is also demanding in terms of computer performance. On the other hand, cryptocurrency exchanges and trading platforms offer a quick and painless registration process as well as the ability to trade from any device in most cases.
Stockbrokers also have a day-trading rule, which requires accounts to have more than $25,000 balance in order to day trade. This rule is called “pattern day trading rule” and is created by FINRA (Financial industry regulatory authority) to stop people from day trading stocks with no intention of supporting the companies or investing into their stocks for the longer term. This makes the barrier to enter the “playing field” when it comes to trading stocks much higher.
Volatility is the single most important indicator when deciding whether something is tradable or not. It signifies the price oscillation of the tradable asset. The more volatile the asset is, the more profit potential it has. It is safe to say that cryptocurrencies are far more volatile than stocks or FOREX, and still have enough volume for traders to avoid any form of slippage. Markets like FOREX or the big stock indexes are safer, but also much slower.
We can compare the NYSE FANG+ index, which consists of the biggest tech companies: Facebook, Amazon, Netflix, Google, Alibaba, Baidu, Nvidia, Tesla, and Twitter. This stock index has returned a total of 21.65% annualized total return, starting from September 19, 2014, until October 31, 2019. It has outperformed the NASDAQ-100 index and S&P500 index by a large margin. Still, when compared to the return Bitcoin has made from September of 2014, it is not even close.
Market liquidity and market depth
Bitcoin and the cryptocurrency market have a decent market size, but not close to anything like FOREX. FOREX is by far the biggest tradable market in the world. It trades 5.3 trillion dollars each day. However, even though the cryptocurrency market is a lot smaller, it has no liquidity issues. Both markets are liquid, and the market depth is good enough, so the traders do not have to worry about their orders not being filled, or any form of slippage. As far as liquidity goes, any market liquidity that does not allow for slippage and sudden non-fluid jumps in price are good enough for trading.
Institutions are trading every form of asset and commodity they can earn money on. However, the cryptocurrency market is still young and fairly free of institutional manipulation. There is no denying that institutions manipulate the order books and use the latest software and the best technology to create a trading “edge.” This makes trading traditional assets extremely hard. FOREX is especially filled with algorithmic robot-trading and market manipulation (to a degree), which destroys all profit potential traders should have. According to data gathered by Morton Glantz and Robert Kissell, the percentage of algorithmic trading in FOREX is ranging from 85% to 90%. On the other hand, algorithmic trading in cryptocurrencies is minuscule compared to the numbers FOREX shows. Competing with machines that are analyzing as well as entering/exiting positions faster than any human can be extremely hard.
When compared to FOREX and stock trading, cryptocurrency markets are less regulated. This gives many platforms a chance to rise and try to offer the best options for the traders, as it is much easier to create a cryptocurrency trading platform than a FOREX brokerage firm. However, quantity does not mean quality. Only a few exchanges are offering innovative and good options to their customers. Most trading platforms offer crypto traders 100x leverage on their traders, among other options, making it much easier to start with less money and profit more from small movements in price.
Quite simply, cryptocurrency trading is available every minute, hour, and every day. There is no downtime, not even for holidays. FOREX markets, on the other hand, are not tradable on weekends, while stock markets have trading hours each day. Why should a trader lose two trading days a week in case of FOREX, or even more when it comes to stocks? Most retail traders are trading only part-time, and this gives them the option to be more involved in trading, as the markets are available and tradable at all times.
Every trader needs to decide how much risk he or she can handle. Trading cryptocurrencies is a bit riskier but brings massive profit potential. On the other hand, investing in stock indexes or FOREX can bring constant minute profits over a longer period.