Investments capitalize on the time value of money. By investing regularly in either an investment portfolio or some type of retirement account, you can enjoy huge compounding benefits. The earlier you start to invest, the quicker you’ll develop proper money management habits when it comes to spending and saving.
If you’ve already started investing, perhaps spending time trading stocks, you may be wondering if it’s a good idea to try other types of investments as well, like currency trading. One way to decide between, say, cryptocurrency vs the stock market, is to understand how to profit from currency trading. There is nothing to prevent you from making money from traditional investments and currency trading. So, you could build your portfolio or retirement account around traditional investment assets like stocks, bonds, mutual funds, and ETFs, and add forex and cryptocurrencies to diversify your portfolio.
The Global Currency Market
When you invest in currencies, you’re participating in a market where world currencies are traded around the clock. Currencies might be anything from traditional currencies like the US dollar, the euro, or the Japanese yen to cryptocurrencies like Bitcoin, Ethereum, or Ripple.
While multinational corporations that do business in various countries use currency markets as a mechanism for transforming one currency into another, traders invest in these things to maximize savings growth or to build personal wealth by betting on the movement of one currency in relation to another one.
Two Distinct Currency Markets
But while all these forms of money are labeled as currency, they aren’t all in the same basket. We’re talking about two distinctly different types of currencies trading in separate markets. Traditional currencies are centralized by a central bank. The US dollar is issued by the Federal Reserve. The euro is issued by the European Central Bank. And the Japanese yen is issued by the Bank of Japan. These types of currencies are traded in forex markets. Meanwhile, cryptocurrencies, like Bitcoin or altcoin (alternatives to Bitcoin), are digitally-encrypted currency. They are decentralized and not controlled by a government or a traditional bank. These are traded in cryptocurrency markets.
Benefits of Investing in Forex
Forex is a global market, but it’s not for the faint of heart because it’s a huge market with high liquidity. Still, the rewards are big if you’re willing to put in the time to learn through an experienced mentor or a comprehensive training program.
This is a market that never sleeps. Because it’s a global market, there is a market open somewhere. The market opens on Sunday evening in Australia and closes on Friday after the markets close in New York.
Since it’s a liquid market, assets can be quickly converted into cash with minimal price movement and without any price discount. Although large amounts of money can be moved quickly, your transaction costs will be low because the cost of the transaction is built into the price. This type of pricing structure is called the spread, and it’s the difference between the price to buy and the price to sell.
You don’t need to be wealthy to be able to trade a large amount of money because forex brokers allow you to use leverage, the capacity to trade more money than you have in your bank account. If, for instance, you traded with a 50:1 leverage, you would be trading with $50 for every dollar that you owned. So, if you invested $100, you could trade $5,000, and if you invested $1,000, you could trade $50,000. Your profits would come from the difference in rising and falling prices. After you identify a currency pair, you can either go long (buy it) if you believe it will rise in or go short (sell it) if you believe it will drop in value.
Benefits of Investing in Cryptocurrency Markets
Cryptocurrency market trading uses similar market dynamics to forex markets. For instance, they both use arbitrage, short-term trading strategies, and long-term investment planning. There are differences, of course, in terms of market conditions, volatility, liquidity, and regulations since they are completely different forms of currency, i.e. centralized vs. decentralized, but if you learn how to do forex trading, you will have more than enough skills to do well with cryptocurrency trading.
The reason you should also consider cryptocurrency when it comes to currency trading is that it has a bright future. Although the current global financial system is becoming increasingly digitized anyway, the centralized banking system is hamstrung by politically-motivated government regulations, archaic banking rules, and high middleman transactional fees.
In closing, think about the value of learning currency trading skills and applying your new-found ability to trade in forex and cryptocurrency markets to diversify your traditional investments.