Mese: gennaio 2022

How Does Cryptocurrency Gain Value?

Getting involved in the world of cryptocurrency trading is still driven by sentiment and emotions rather than valuation, considering that market prices are speculative, but don’t let your heart cloud your judgment. Cryptocurrencies gain value in the same way as fiat currencies, through demand, which in many cases comes from their usefulness, as well as from trust in the issuer of the currency. Their value grows as the amount of input and traction achieved from its users rises.

Crypto has gained confidence in emerging economies. Bitcoin and other cryptocurrencies are used by ordinary people to avoid strict government capital controls for overseas payments, gaining the position of the fastest growing payment system in the world. Most cryptocurrencies are not governed by banks or governments, so no one controls the price; it’s more about demand and supply. High demand, low supply, open doors for opportunities, this is what we are all looking for. So how do cryptocurrencies gain value?

More Efficient Money

Cryptocurrencies are digital assets that combine cryptography with blockchain technology to enable faster, cheaper, and more secure financial transactions. Decentralised cryptocurrencies do everything that traditional fiat money does, and more, because it is global and not subject to control by a totalitarian government or interference from any third-party supporter.

Cryptocurrencies can be exchanged on a peer-to-peer basis, without intermediation by an external entity. Not only can users transact directly with each other at any time and from anywhere, but they do so autonomously, without the need to rely on a central bank or counterparty, giving them full control of their money.

The value of cryptocurrency is that they store a constant value and act as a medium of exchange for goods and services globally, not just locally.

Transparency, an added value

Imagine walking into your local bank and asking to see the bank’s entire ledger: the complete record of all mortgages, debt obligations, transactions, etc. since the bank opened its doors. Your request would be denied. But with blockchain technology, any transaction is available for anyone to see at any time, as every transaction is recorded, authenticated, and shared across a vast network of devices. The digital ledger provides a transparent, traceable, and visible trail for all. In this way, there is no need for users to rely on a central bank or authority to complete a transaction, users are in full control of their money and how they handle it.

Regulations and Governments

While popular fintech appshave helped to make some traditional financial services simpler, third parties are still involved, making it impossible for users to make true peer-to-peer (P2P) transactions. People sending money across borders are not only dependent on third parties such as banks and banking services but are also forced to pay high fees for a service that is by far too slow at present.

Globally, almost 7% of financial transactions have fees applied to them. A large part of these fees is for intermediaries involved in money transfers. In addition, cross-border exchanges take a long time, with some transactions taking days to complete. When the cost of exchanging money becomes a burden on the value of the currency, no one wins.

Only decentralised cryptocurrencies can offer the unbanked access to many of the same opportunities.

Utility

More and more companies are accepting cryptocurrencies as a form of payment. Of course, this depends on the country you live in and how are cryptocurrencies accepted. Other companies have also created debit cards where you can use your crypto and pay in physical shops as well as virtual ones. There are also special ATMs where you can exchange your virtual currencies to physical money to but products.

Security

In recent years, there have been major high-profile cryptocurrency hacks, hundreds of millions of dollars have been stolen and the lack of security created a trust barrier among some investors. A cryptocurrency is a digital asset that uses cryptographic encryption to guarantee its ownership and ensure the integrity of transactions, and to control the creation of additional units or making copies.

Cryptocurrencies are created using blockchain technology, which describes the way in which transactions are recorded in blocks and timestamped. It is a fairly complex technical process, but the result is a digital record of cryptocurrency transactions that is difficult for hackers to manipulate.

In addition, transactions require a two-factor authentication process. For example, you may be asked to enter a username and password to initiate a transaction. You may then need to enter an authentication code that is sent as a text message to your mobile phone.

Supply and demand

FOMO (Fear of Missing Out) is a very common term among cryptocurrency investors, which describes the period when prices are volatile and investors panic for profit or loss. In the case of cryptocurrencies, as there is usually a shortage of them and therefore much more demand than supply, they rise in value fairly regularly, despite their ups and downs.

Conclusion

Cryptocurrencies may be the most important thing to happen to money since the gold standard. While it is true that there are still many people who are wary of cryptocurrencies and do not fully understand how cryptocurrencies maintain their value, others who have followed the progress of cryptocurrencies since Bitcoin was first mined in 2009 understand their relevance and benefits and see cryptosas even better than traditional money. The most promising digital currencies are disrupting the global financial services space because they offer financial freedom for all thanks to decentralisation.

However, let’s not forget that the cryptocurrency market is volatile. You will see drastic price fluctuations, so if your investment portfolio or mental well-being can’t handle it, cryptocurrencies are probably not right for you. Investing in something new comes with challenges, so be prepared. If you plan to take part in the crypto environment, do your research, and invest moderately to get started. Investing in this innovative currency can turn out to be a very profitable opportunity if you have the idea of its values.

Forex Vs Stock Market

People who want to invest in the financial markets have some confusion due to the wide range of existing financial products.

The foreign exchange market or forex market is growing rapidly and is becoming very popular among small investors. The best-known market is the stock exchange, where the shares of the country’s major companies are listed. But more and more the best forex trading platform is gaining ground against the stock market.

The doubt that people who want to invest their savings in the financial markets have been whether to do it in the stock market or to do it in forex. So, the typical question is, what is the difference between forex and the stock market?

These financial instruments are very different, and both have different levels of risk. Some investors invest in the stock market and want to switch to forex, and many doubts arise.

The internet is full of hoaxes and half-truths about the financial markets. Yes, you can indeed earn a lot of money in certain very specific circumstances, which are not the usual ones. Therefore, you should be aware that investments in stocks and currencies are high risk. If you do not know how to manage the risk, you can lose all your capital.

The difference between forex and the stock market

Location of the financial markets

In the past, investors used to meet physically at the stock exchanges to negotiate the exchange of listed securities. Today, the vast majority of transactions are done over the internet. Purchases and sales of securities are recorded in a register.

The foreign exchange or forex market does not have a physical Transactions are done privately between buyers and sellers. Everything is done electronically through a broker.

Capital to invest in forex and the stock market

Investing in stocks requires much more capital than investing in the forex market. The forex market is a little more complicated to understand than the stock market. However, once you understand the basics of how it works, and learn a minimum of technical analysis, you will be ready to invest.

The great advantage of the Forex market is the leverage offered by brokers. Leverage means that with little capital, you can make important investments since the broker lends you the money. This is a tool that you must learn to use conveniently. With leverage, you can have impressive returns, but also considerable losses.

Here is an example to help you understand why you need less capital in forex than in the stock market:

Example of stock investment

In the example, we will not consider the commissions charged by the broker.

Imagine that you buy a share at 1,000 and sell it at 1,050, which is a 5% return. Let’s take a look at it:

Leverage: In the stock market you have no leverage.

Total investment: Capital X leverage = 1.000 x 1 = 1.000 €.

Total profit: Profit – Investment = 1.050 – 1.000 = 50 €.

Profitability = (Total Profit / Investment) x 100 = (50 / 1,000) x 100 = 5%.

Example of forex investment 

In the example, we will not consider the commissions or the spread charged by the broker.

Imagine that you invest 1.000 ¤ buying the EUR/USD pair and sell it with a profit of 5%. With the leverage effect you will see that your profitability is much higher than 5%:

Leverage: let’s say your broker offers you a leverage of 1:100

Total investment: Capital X leverage = 1.000 x 100 = 100.000 €.

Total profit: Profit – Investment = 105.000 – 100.000 = 5.000 €.

Profitability of your investment = (Total profit / Investment of your money) x 100 = (5.000 / 1.000) x 100 = 500%.

The difference in profitability between forex and the stock market

As you can see in the example, the leverage effect that forex provides can generate a lot of profitability with little capital. For this reason, forex investment can be better than stock investment if done right.

Of course, in the same way, that it can give you spectacular profits, it can also eat your capital in the same proportion. That is why you must train yourself and learn how to manage the risk before starting to operate in this market.

Broker commissions 

The commissions charged by brokers differ between the forex market and the stock market. Another advantage of the forex market is that the commissions are lower than in the stock market.

Stockbrokers will charge you for the entry and exit of the investment. In addition, they will usually charge you a periodic commission for having your trading account.

As billions and billions of dollars are moved every day in forex, the costs of each transaction are usually very tight.

A forex broker will charge you the spread, which is the difference between the bid and ask price of a currency pair. Some brokers may also charge a small commission per trade.

The main currencies in the forex market are EUR, USD, GBP, JPY, CHF, and CAD. As these currencies are heavily traded every day all over the world, there is always liquidity, i.e., there is always some investor in the world willing to buy or sell a currency. That is why forex commissions are so low compared to stocks.

It is often said that investing is when you buy an asset because you trust that in the long term it will increase in value. On the other hand, it is said that speculating is when you buy something to sell it quickly to obtain a profit.

From our point of view, everything is speculation. But well, politically it seems nicer to say that the bad guy is the speculator, and the good guy is the investor. But isn’t the investor speculating?

Continuing with the topic, in the forex market, in general, it is not usual to hold positions for a long time. There are even some traders who make investments of hours or even minutes. That is why it is said that the forex market is more speculative than the stock market.

When you buy shares of a company, you usually do it to keep them over time because you think they will rise in value. Some people buy shares and keep them for many years.

With shares, you can also make very short-term operations, but the commission costs are much higher, and you also need significant capital to make this type of investment, since you do not have leverage.

To each their own 

From our point of view and my years of experience in the financial markets, we find forex much more attractive for small investors.

Of course, forex is more speculative than the stock market. You have to see which market best suits your personality, your situation, and most importantly, your knowledge.