How have cryptocurrencies affected the online trading industry and traders?
For 2017 cryptocurrencies were one of the most exciting sections of the global markets. While still controversial, the huge run-up in price of digital coins has drawn interest from amateurs to professional traders alike. This is no coincidence, when a price of an asset goes up so strongly and consistently for a while, one of the first questions that pop on most peoples’ minds is – how do I get in on the action. It turns out there are several ways to do this – either trade cryptocurrencies through exchanges or by using CFDs. We will focus on the CFDs industry side of things. Along with questions of method, there is always questions of fundamentals and risk. The latter are issues pros will care more about than your average Joe, and this makes all the difference when it comes to trading approach.
While the Bitcoin has been synonym for digital money based on blockchain technology for a while, 2017 saw rise of other coins as well as a rush of money to ICO’s. The online ad-space seems to be taken over by all kinds of crypto-related offers, many of them targeting those who just heard about the craze and insane price spikes, but at the same time do not possess knowledge or the ability to discern between a proper product and a fraud. This inherent information asymmetry of the cryptocurrency space is something that many have used to defraud “investors” from around the world. The lack of transparency, regulation and consumer protection is to blame, so it’s not weird in any way that the major price swings in prices of cryptocurrencies were stemming from the news regarding the regulation (or lack thereof) in certain countries and territories.
Should beginners trade cryptocurrencies?
When approaching the opportunities that arise for traders in the cryptocurrency trading, the fact that they are volatile and mainly driven by news on decisions of governments is something that drastically influences the perception of how to trade them. Also, important – who should trade them. Things were easier in the phase when cryptocurrency markets seemed to know only one way – up. Now, the plateaus have been reached, at least for a while, but the volatility remains, the terrain seems to favor professionals more than amateurs.
One of the well-researched facts of irrational price rises is that amateurs usually join in at the top and then get heavily smashed when the tide turns. This phenomenon has been noticed in the dot-com bubble as well in the pre-Great Recession peak. This is not promising for beginners. Actually, it was interesting to see IG take up positions in the futures markets in order to counteract the effects of many traders just getting on the buy side of crypto CFDs and waiting it out. Some brokers resorted to cutting affiliate commissions after they figured out that many traders aren’t actually trading, but just holding positions. Eventually as the cryptocurrencies started to tank the trading activities increased, and with them the brokers’ profit outlook on traders dealing exclusively with digital coins.
How do pro-traders perceive the crypto-opportunity?
The increased volatility is something that most traders would welcome since it offers more chances for day traders, however, it seems that many in the CFD trading community are not really excited about cryptocurrencies. A poll by a major retail-finance industry portal recently revealed that most traders plan to stick to CFDs with traditional currency pairs. Low leverages and in some cases, much higher commissions on crypto trades are also possible reasons that overhyped cryptocurrencies currently seem to be market that is only left to beginners and the easily impressible general public.
Can the crypto provide a boost to the forex industry?
The fact that beginners who “want in” on the cryptocurrency price appreciation are first to jump on the crypto-CFDs train is not necessarily a good thing, considering that most of forex traders lose money and considering the recent actions of regulators to curb exposure of regular citizens, to these, how they call them, complex financial instruments. Bitcoin volatility per year was about 60%. The cross-correlation between prices of various cryptocurrencies is growing, while the rapid price increases have ebbed, to be replaced by a less clear outlook. This makes trading cryptocurrencies harder. Overall the influx of the new traders can be a welcome thing, but if its built on false promises of Bitcoin riches, more regulatory scrutiny might follow the wave of disappointed customers.