Pros and Cons of Cryptocurrency Trading
Categories: Crypto Trading
Publish date: 2023-1-6
Cryptocurrencies are slowly but surely becoming more popular in Malaysia. They have the potential to revolutionize the way we pay for goods and services and the existence of traditional financial structure. If you've been wondering what all the hype is about with cryptocurrencies, don't worry! We're here to help you understand the pros and cons of cryptocurrency trading in this article.
Table of Contents
- Pros of Cryptocurrency Trading
- Safe and Secure
- Easy Access
- Hedge against Inflation
- High Liquidity
- Cons of Cryptocurrency Trading
- Takes a lot of Time and Effort to Learn
- High Volatility
- Lack of Regulation
- Cryptocurrency Exchange Security
- The Bottom Line
Pros of Cryptocurrency Trading
Safe and Secure
Cryptocurrencies use cryptography to form a decentralized system for recording transactions and issuing new units. The financial transaction is based on blockchain technology which allows transparent financial transactions for everyone, allowing secure forms of payment to the users. Instead of using a centralized system such as having banks as intermediary, cryptocurrencies do not associate with bank accounts and do not need any personal information when dealing with transactions, providing privacy and security to the users.
However, one thing to note is that using a crypto exchange is not as secure as most people think. A lot of the incidents such as cryptocurrency being hacked is due to the security breach of the crypto exchange and some other cases like falling for phishing scams. Thus, it is much better to use your own digital wallet to store cryptocurrency to ensure security. Without knowing your private keys to the crypto wallet, it offers invulnerability to hacking and fraud.
Cryptocurrencies such as Bitcoin offer universal trade that is available to everyone, regardless of their location or financial standing. Through their mobile apps and digital wallets, people can buy and sell cryptocurrencies with ease, 24 hours a day, 7 days a week. This is one of the major advantages of crypto trading, as it relies on decentralized governance, meaning there is no central authority to ensure the security and stability of the market. This makes cryptocurrency transactions quick and easy, and allows traders from all over the world to work together without interference.
This has made cryptocurrencies one of the most popular investment options in recent years, as it allows anyone to participate in the market at any time. Additionally, because cryptocurrencies are traded 24 hours a day and 7 days a week, they make great tools for microfinance services and other non-traditional investments.
Hedge against Inflation
All cryptocurrencies have limited supply caps, such as Bitcoin, Ethereum, Litecoin etc. They are thought to be good for inflation hedging. Simply put, inflation occurs due to central banks and governments printing more and more money, depreciating the money in value as more money is printed, meaning for the same goods and services, it will require more money to buy due to the value of money dropping.
However, as the cryptocurrencies coins have a fixed amount of supply, this makes more and more dollars chasing the fixed supply of coins, thus making the price per coin in dollars go higher and higher. So trading cryptocurrency can serve as a hedge against inflation due to no inflation happening to cryptocurrency with their limited coin cap.
Cryptocurrency is a volatile investment. Its volatility makes it perfect for traders who want to make quick profits, but it can also be a risky investment for those who are not experienced in the market and hence generate a loss. The volatility of the cryptocurrency is what makes it have a very high liquidity.
High liquidity is one of the reasons why trading cryptocurrency is a smart decision. Liquidity refers to how quickly and easily cryptocurrency can be converted back into cash. By trading or investing into cryptocurrency, it can serve as a better "money saving" method instead of putting the money into piggy banks.
As inflation occurs, the money in the piggy bank will start to drop in value, so why not trade or invest in cryptocurrency to beat inflation. With its high liquidity, investors can get back their money for any emergency purpose easily.
Unlike other stocks with lower liquidity, it can take up to weeks or even months to convert back into cash. It can be dangerous if money is needed immediately. Thus, the high liquidity of cryptocurrency trading is one of its major advantages to combat the particular urgent cases.
[Disclaimer] The articles above are purely personal opinions and are not intended to be investment advice. Only for the purpose of mutual learning and sharing. There is no express or implied warranty regarding the accuracy or completeness of the above-mentioned information. Anyone who relies on the information, ideas, or data contained in this article does so entirely at their own risk.
Cons of Cryptocurrency Trading
Takes a lot of Time and Effort to Learn
Cryptocurrencies can be a bit confusing for those who are not digital natives. But if you're up for the challenge, understanding how trading and investing in cryptocurrency work can be time consuming but rewarding.
FXCM has created helpful blog posts to help you get started. Everything you need to know about Cryptocurrency can be found in our blog to help you learn more about cryptocurrency trading.
Cryptocurrency trading can be a double edged sword, while it may offer a faster and higher reward in a short period of time, it may also be risky as you take the chance of either winning double or losing double.
The high volatility nature of cryptocurrency trading is what makes it risky without proper risk management strategy and professional investment skills. Even the experts suffer the risk of losing money due to unpredictable situations, let alone the newbies. Thus, it is very crucial to learn more about cryptocurrency trading before stepping into the world.
As a suggestion, beginners may open a demo account in FXCM to start crypto CFD trading without using money first to familiarize with how it works and cover up any shortcomings.
Lack of Regulation
Cryptocurrencies have been gaining a lot of traction in recent years. However, their lack of regulation makes them susceptible to exploitation. While some believe this lack of oversight presents opportunities for investors, others are concerned about the security and stability of the system. If there is no regulatory body governing cryptocurrencies, people think that there will be a risk of the system "imploding".
Due to the absence of regulation, there is also an increasing number of people using cryptocurrency in criminal activities. This is because the anonymity and privacy that is kept when trading cryptocurrency, it becomes harder to track the criminals.
Cryptocurrency Exchange Security
Cryptocurrencies exchange is the marketplace where cryptocurrency can be traded and bought. While previously it was mentioned that cryptocurrency is safe and secure, that only applies to keeping your cryptocurrency in your crypto wallet and don't ever leak your private keys in any given case.
A lot of cases where cryptocurrency is hacked is due to the breach security of the crypto exchange. There have been reports of hacking into accounts of the crypto exchange, costing people millions of dollars. Thus, it is very crucial to pick a good cryptocurrency exchange with highly secured cybersecurity in order to prevent this issue.
There are choices of choosing crypto exchange or crypto brokers as the platform to trade cryptocurrency. While they have their own pros and cons, brokers usually offer more guidance and safety than crypto exchanges in exchange for charging more user fees. However, it is worth it due to having better security with only little additional cost. For example, FXCM is one of the leading crypto CFD brokers that offers high security and professional tools for crypto CFD trading.
The Bottom Line
Cryptocurrency has a lot of disputable discussion due to being a completely new financial system, like being decentralized, the transparency and flexibility it brings. There are a lot of advantage to offer that consumer seeks nowadays. Although cryptocurrency brings many advantages, it also brings many disadvantages that can be an issue. So it is ideal to understand the risks involved before making the decision of investing or trading cryptocurrency.